TABLE OF CONTENTS




|                                                   |                                                                                                |  |  |  |  |  |  | 
|-------------------------------------------------- | ---------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I                                            
|                                                   | Item 1. Description of Business.                                                              
|                                                   | Item 2. Description of Property.                                                              
|                                                   | Item 3. Legal Proceedings.                                                                    
|                                                   | Item 4. Submission of Matters to a Vote of Security Holders.                                  
|PART II                                           
|                                                   | Item 5. Market for Registrants Common Equity and Related Stockholder Matters.                
|                                                   | Item 6. Managements Discussion and Analysis of Financial Condition and
Results of Operations.
|                                                   | Item 7. Financial Statements.                                                                 
|                                                   | Item 8. Change in and Disagreements with Accountants on Accounting and
Financial Disclosure.  
|PART III                                          
|                                                   | Item 9. Directors and Executive Officers of the Registrant.                                   
|                                                   | Item 10. Executive Compensation.                                                              
|                                                   | Item 11. Security Ownership of Certain Beneficial Owners and Management.                      
|                                                   | Item 12. Certain Relationships and Related Transactions.                                      
|PART IV                                           
|                                                   | Item 13. Exhibits.                                                                            
|SIGNATURES                                        
|Exhibit 13.0 - Annual Report to Stockholders      
|Exhibit 21.0 - Subsidiary of the Registrant       
|Exhibit 23.0 - Consent of Clark, Schaefer, Hackett



---



U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

FORM 10-KSB

[X] Annual Report under Section 13 or 15(d) of the Securities Exchange Act of 1934

For the fiscal year ended December 31, 2000

OR

[  ] Transition Report under Section 13 or 15(d) of the Securities Exchange Act of 1934

Commission File No.: 0-28162

LENOX BANCORP, INC.
(Name of small business issuer in its charter)

|                                |  |                                     
|------------------------------- |  | ------------------------------------
|Ohio                            |  | 31-1445959                          
|                               
|                               
|                               
|                               
|(State or other jurisdiction of |  | (I.R.S. Employer Identification No.)
|                               
|                               
|                               
|                               
|incorporation or organization) 

|                                                                                
|--------------------------------------------------------------------------------
|4730 Montgomery Road, Norwood, OH 45212
(Address of principal executive offices)

Issuers telephone number: (513) 531-8655
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:



| |                                            
| | -------------------------------------------
| | Common Stock, no par value
(Title of class)

Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
YesX     No___.

Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained herein, and no disclosure will be contained, to
the best of registrants knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [  ]

The issuers revenues for its most recent fiscal year were: $5,643,000.

The aggregate market value of the voting and non-voting common equity held
by non-affiliates computed by reference to the price at which the common equity
was sold, as of March 21, 2001 was approximately $2.0 million  (227,524 shares at
$8.895 per share). Solely for purpose of this calculation, it is assumed that
directors and officers are not affiliates of the Registrant.

As of March 21, 2001, the issuer has 285,028 shares outstanding.





---



##### Table of Contents



INDEX

|         |  |                                                                                                                 |  |      |    | 
|-------- |  | --------------------------------------------------------------------------------------------------------------- |  | ---- | -- | 
|PART I   |  |                                                                                                                 |  | PAGE
|Item 1.  |  | Description of Business
Additional Item. Executive Officers of Registrant                                       |  |      | 1  | 
|        
|        
|        
|        
|        
|        
|        
|        
|        
|        
|        
|        
|        
|        
|        
|        
|Item 2.  |  | Description of Property                                                                                         |  |      | 28 | 
|        
|        
|        
|        
|        
|        
|        
|        
|        
|        
|        
|        
|        
|        
|        
|        
|Item 3.  |  | Legal Proceedings                                                                                               |  |      | 28 | 
|        
|        
|        
|        
|        
|        
|        
|        
|        
|        
|        
|        
|        
|        
|        
|        
|Item 4.  |  | Submission of Matters to a Vote of Security Holders                                                             |  |      | 29 | 
|        
|        
|        
|        
|        
|        
|        
|        
|        
|        
|        
|        
|        
|        
|        
|        
|PART II 
|        
|        
|        
|        
|        
|        
|        
|        
|        
|        
|        
|        
|        
|        
|        
|        
|Item 5.  |  | Market for Common Equity and Related
Stockholder Matters                                                        |  |      | 29 | 
|        
|        
|        
|        
|        
|        
|        
|        
|        
|        
|        
|        
|        
|        
|        
|        
|Item 6.  |  | Managements Discussion and Analysis or Plan
of Operations                                                      |  |      | 29 | 
|        
|        
|        
|        
|        
|        
|        
|        
|        
|        
|        
|        
|        
|        
|        
|        
|Item 7.  |  | Financial Statements                                                                                            |  |      | 29 | 
|        
|        
|        
|        
|        
|        
|        
|        
|        
|        
|        
|        
|        
|        
|        
|        
|Item 8.  |  | Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure                            |  |      | 29 | 
|        
|        
|        
|        
|        
|        
|        
|        
|        
|        
|        
|        
|        
|        
|        
|        
|PART III
|        
|        
|        
|        
|        
|        
|        
|        
|        
|        
|        
|        
|        
|        
|        
|        
|Item 9.  |  | Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act |  |      | 29 | 
|        
|        
|        
|        
|        
|        
|        
|        
|        
|        
|        
|        
|        
|        
|        
|        
|Item 10. |  | Executive Compensation                                                                                          |  |      | 29 | 
|        
|        
|        
|        
|        
|        
|        
|        
|        
|        
|        
|        
|        
|        
|        
|        
|Item 11. |  | Security Ownership of Certain Beneficial Owners
and Management                                                  |  |      | 30 | 
|        
|        
|        
|        
|        
|        
|        
|        
|        
|        
|        
|        
|        
|        
|        
|        
|Item 12. |  | Certain Relationships and Related Transactions                                                                  |  |      | 30 | 
|        
|        
|        
|        
|        
|        
|        
|        
|        
|        
|        
|        
|        
|        
|        
|        
|Item 13. |  | Exhibits and Reports on Form 8-K                                                                                |  |      | 30 | 





---



##### Table of Contents






PART I




Item 1. Description of Business.

General

Lenox Bancorp, Inc. (the Company) was incorporated under Ohio law on
July 24, 1995. On July 17, 1996, the Company acquired Lenox Savings Bank (the
Bank or Lenox). The Company is a savings and loan holding company and is
subject to regulation by the Office of Thrift Supervision (the OTS), the
Federal Deposit Insurance Corporation (the FDIC) and the Securities and
Exchange Commission (the SEC). Currently, the Company does not transact any
material business other than through the Bank.

The Bank was originally chartered in 1887 as an Ohio building and loan
company for the primary purpose of serving the financial needs of the employees
of Procter & Gamble. The Bank later converted to an Ohio savings and loan
company and in November 1993, converted to an Ohio savings bank under its
current name. On March 20, 2000, the Bank relocated its main office to
Norwood, Ohio. Prior to its move, the Bank had leased space from Procter &
Gamble Company in St. Bernard, Ohio. The Bank also operates out of a branch
office located at 3521 Erie Avenue, Cincinnati, Ohio 45208.

The Bank is primarily engaged in attracting deposits from the general
public in its primary market area and investing such deposits and other
available funds in mortgage loans secured by one- to four-family residences.
To a lesser extent, the Bank also invests in consumer, multi-family and
construction loans. Due to the close ties that have existed between the Bank
and Procter & Gamble, the Bank continues to have a high concentration of
borrowers and depositors who are Procter & Gamble employees. During the fourth
quarter of 1998, the Bank began using third party originators to develop
multi-family lending and to increase its loan production. The Bank also opened
a branch office in Hyde Park in October 1997, which has facilitated the Banks
ability to attract new deposits and loan customers. In times of low mortgage
demand, the Bank has sought to invest available funds in short-term investment
securities including U.S. Government and Agency securities, and most recently,
through the purchase of collaterialized mortgage obligations (CMOs).

Market Area and Competition

The Bank primarily originates one- to four-family residential mortgage
loans within its primary market area. The Banks deposit gathering and lending
markets are concentrated in Hamilton County, Ohio, however, the Bank also
offers loans in Warren, Butler and Clermont counties, Ohio and Boone, Campbell
and Kenton counties, Kentucky. The Banks high concentration of lending to and
deposit gathering from Procter & Gamble employees has resulted in the Bank
directly competing with institutions throughout the Cincinnati area, and in
recent years directly with a Cincinnati commercial bank that has opened branch
offices at Procter & Gamble facilities.

The Cincinnati area, which includes Hamilton County, has a stable economic
base supported by a variety of industries and employment sectors. Cincinnati
is the second largest metropolitan area in the state of Ohio and has developed
the economic characteristics of most large cities in the midwestern United
States. Following the national trend, service industries were the fastest
growing employment sector and is now the largest employment sector in the

1



---



##### Table of Contents



Hamilton County. The second largest employment sector is the wholesale and
retail trade sector. Although less prominent, manufacturing remains a large
employment sector, providing employment in such industries as transportation
equipment, food products, industrial machinery and chemicals. The remaining
employment is provided by government, finance, insurance and real estate,
construction, transportation and public utilities.

Cincinnati is the chosen headquarters for many Fortune 500 companies,
including Procter & Gamble, E.W. Scripps, Federated Department Stores and
Cincinnati Milacron. Many other companies among the Fortune 500 have also
established operations in Cincinnati, including Ford Motor Corp. and General
Electric. Overall, Cincinnatis popularity among large employers has served to
increase the size and stability of the Cincinnati economy.

The Cincinnati areas increasingly diverse economic mix provides the
metropolitan area with a strong degree of economic stability. Employment
increases in the service and wholesale/retail trade industries, coupled with
less dependence on manufacturing employment has further insulated the economy
from recessionary trends.

The Bank faces significant competition both in making loans and in
attracting deposits. The Banks competitors are the financial institutions
operating in its primary market area, many of which are significantly larger
and have greater financial resources than the Bank. The Banks competition for
loans comes principally from commercial banks, savings and loan associations,
mortgage banking companies, credit unions and insurance companies. Its most
direct competition for deposits has historically come from savings and loan
associations and commercial banks. In addition, the Bank faces increasing
competition for deposits from non-bank institutions such as brokerage firms and
insurance companies in such areas as short-term money market funds, corporate
and government securities funds, mutual funds and annuities. Competition may
also increase as a result of the lifting of restrictions on the interstate
operations of financial institutions. Additionally, the Bank expects
competition to increase in the future as a result of legislative, regulatory
and technological changes and the continuing trend of consolidation in the
financial services industry. Technological advances, for example, have lowered
barriers to market entry, allowed banks to expand their geographic reach by
providing services over the Internet and made it possible for non-depositing
institutions to offer products and services that traditionally have been
provided by banks. The Gramm-Leach-Bliley Act, which permits affiliation among
banks, securities firms and insurance companies, also will change the
competitive environment in which the Bank conducts business.

Lending Activities

Loan Portfolio Composition.The types of loans that the Bank may
originate are subject to federal and state law and regulations. Interest rates
charged by the Bank on loans are affected by the demand for such loans and the
supply of money available for lending purposes and the rates offered by
competitors. These factors are, in turn, affected by, among other things,
economic conditions, monetary policies of the federal government, including the
Federal Reserve Board and legislative tax policies.

2



---



##### Table of Contents



The following table sets forth the composition of the Banks loan
portfolio in dollar amounts and in percentages of the respective portfolios at
the dates indicated.

|                            |                            |                         |        |        |        |          |        |                        |        |          |        |        |        |         |        |       |        | 
|--------------------------- | -------------------------- | ----------------------- | ------ | ------ | ------ | -------- | ------ | ---------------------- | ------ | -------- | ------ | ------ | ------ | ------- | ------ | ----- | ------ | 
|                            |                            |                         |        |        |        |          |        | At December 31,       
|                            |                            |                         |        |        |        |          |        |                       
|                            |                            |                         |        | 2000   |        | 1999    
|                            |                            |                         |        |        |        |         
|                            |                            |                         |        |        |        |          |        | Percent                |        |          |        |        |        | Percent
|                            |                            |                         |        | Amount |        | of Total |        | Amount                 |        | of Total
|                            |                            |                         |        |        |        |          |        |                        |        |         
|                            |                            |                         |        |        |        |          |        | (Dollars in thousands)
|Real estate loans:         
|                           
|                           
|                           
|                           
|                            | One- to four-family(1)     |                         | $      | 49,444 |        |          |        | 85.30                  | %      |          | $      | 55,456 |        |         |        | 85.26 | %     
|                           
|                           
|                           
|                           
|                            | Multi-family               |                         |        | 5,892  |        |          |        | 10.17                  |        |          |        | 6,325  |        |         |        | 9.72  |       
|                           
|                           
|                           
|                           
|                            | Commercial real estate     |                         |        | 249    |        |          |        | 0.43                   |        |          |        |       |        |         |        |      |       
|                           
|                           
|                           
|                           
|                            | Construction               |                         |        | 819    |        |          |        | 1.41                   |        |          |        | 2,114  |        |         |        | 3.25  |       
|                            |                            |                         |        |        |        |          |        |                        |        |          |        |        |        |         |        |      
|                            |                            | Total real estate loans |        |        | 56,404 |          |        |                        | 97.31  |          |        |        | 63,895 |         |        |       | 98.23  | 
|                           
|                           
|                           
|                           
|Other loans:               
|                           
|                           
|                           
|                           
|                            | Consumer loans(2)          |                         |        | 1,836  |        |          |        | 3.17                   |        |          |        | 1,989  |        |         |        | 3.06  |       
|                            |                            |                         |        |        |        |          |        |                        |        |          |        |        |        |         |        |      
|                            |                            | Total loans             |        |        | 58,240 |          |        |                        | 100.48 |          |        |        | 65,884 |         |        |       | 101.29 | 
|                           
|                           
|                           
|                           
|Less:                      
|                           
|                           
|                           
|                           
|                            | Deferred loan fees/(costs) |                         |        | (93    | )      |          |        | (0.16                  | )      |          |        | (115   | )      |         |        | (0.18 | )     
|                           
|                           
|                           
|                           
|                            | Loans in process           |                         |        | 245    |        |          |        | 4.22                   |        |          |        | 864    |        |         |        | 1.33  |       
|                           
|                           
|                           
|                           
|                            | Allowance for loan losses  |                         | 126    |        |        |          | 2.17   |                        |        |          | 90     |        |        |         | 0.14   |      
|                            |                            |                         |        |        |        |          |        |                        |        |          |        |        |        |         |        |      
|                            | Total reductions           |                         |        | 278    |        |          |        | 0.48                   |        |          |        | 839    |        |         |        | 1.29  |       
|                            |                            |                         |        |        |        |          |        |                        |        |          |        |        |        |         |        |      
|Total loans receivable, net |                            | $                       | 57,962 |        |        |          | 100.00 | %                      |        | $        | 65,045 |        |        |         | 100.00 | %    
|                            |                            |                         |        |        |        |          |        |                        |        |          |        |        |        |         |        |      



---

|(1) |  | Includes second mortgage loans and home equity lines of credit on
residential one- to four-family properties.
|--- |  | -------------------------------------------------------------------------------------------------------------
|   
|   
|   
|   
|(2) |  | Includes loans secured by automobiles, boats, common stock, savings
accounts and unsecured loans.            

3



---



##### Table of Contents



Loan Maturity.The following table shows the maturity of the Banks loans
at December 31, 2000. The table does not include principal repayments.
Principal repayments totaled $7.4 million and $9.8 million for the years ended
December 31, 2000 and 1999, respectively. At December 31, 2000, the Bank held
$3.7 million of loans available for sale recorded at the lower of cost or
market. The table does not include the effect of future loan prepayment
activity. While the Bank cannot project future loan prepayment activity, the
Bank anticipates that in periods of stable or rising interest rates, prepayment
activity would be lower than prepayment activity experienced in periods of
declining interest rates.

|             |                                  |                           |   |           |  |        |   |        |  |             |   |                      |  |             |   |       |  |   |        |        |     |  
|------------ | -------------------------------- | ------------------------- | - | --------- |  | ------ | - | ------ |  | ----------- | - | -------------------- |  | ----------- | - | ----- |  | - | ------ | ------ | --- | -
|             |                                  |                           |   |           |  |        |   |        |  |             |   | At December 31, 2000
|             |                                  |                           |   |           |  |        |   |        |  |             |   |                     
|             |                                  |                           |   | One- to   |  |        |   |        |  | Commercial 
|             |                                  |                           |   | Four-     |  | Multi- |   | Real   |  |             |   |                      |  | Total Loans
|             |                                  |                           |   | Family(1) |  | Family |   | Estate |  | Consumer(2) |   | Receivable          
|             |                                  |                           |   |           |  |        |   |        |  |             |   |                     
|             |                                  |                           |   |           |  |        |   |        |  |             |   | (In thousands)      
|Amounts due:
|            
|            
|            
|            
|             | One year or less                 |                           | $ | 912       |  |        | $ |       |  |             | $ |                     |  |             | $ | 657   |  |   | $      | 1,569  |    
|            
|            
|            
|            
|             | More than one year to five years |                           |   | 3,514     |  |        |   |       |  |             |   |                     |  |             |   | 1,179 |  |   |        | 4,693  |    
|            
|            
|            
|            
|             | More than five years             |                           |   | 45,836    |  |        |   | 5,893  |  |             |   | 249                  |  |             |   |      |  |   |        | 51,729 |    
|             |                                  |                           |   |           |  |        |   |        |  |             |   |                      |  |             |   |       |  |   |        |       
|             | Total amount due                 |                           | $ | 50,262    |  |        | $ | 5,893  |  |             | $ | 249                  |  |             | $ | 1,836 |  |   | $      | 58,240 |    
|             |                                  |                           |   |           |  |        |   |        |  |             |   |                      |  |             |   |       |  |   |        |       
|             | Less:                           
|            
|            
|            
|            
|             |                                  | Undisbursed loan funds    |   |           |  |        |   |        |  |             |   |                      |  |             |   |       |  |   |        |        | 245 |  
|            
|            
|            
|            
|             |                                  | Deferred loan costs, net  |   |           |  |        |   |        |  |             |   |                      |  |             |   |       |  |   |        |        | (93 | )
|            
|            
|            
|            
|             |                                  | Allowance for loan losses |   |           |  |        |   |        |  |             |   |                      |  |             |   |       |  |   |        |        | 126 |  
|             |                                  |                           |   |           |  |        |   |        |  |             |   |                      |  |             |   |       |  |   |        |       
|             |                                  | Total loans, net          |   |           |  |        |   |        |  |             |   |                      |  |             |   |       |  | $ | 57,962 |       
|             |                                  |                           |   |           |  |        |   |        |  |             |   |                      |  |             |   |       |  |   |        |       



---

|(1) |  | Includes second mortgage loans on residential one- to four-family
properties and construction loans originated to fund the construction of
residential one- to four-family mortgage loans and home equity
loans.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) |  | Includes loans secured by automobiles, boats, common stock, savings
accounts and unsecured loans.                                                                                                               

4



---



##### Table of Contents



The following table sets forth the dollar amount of gross loans
receivable, contractually due after December 31, 2001 and whether such loans
have fixed interest rates or adjustable interest rates.

|                       |             |   |                             |        |            |   |        |        |  |   |        |        | 
|---------------------- | ----------- | - | --------------------------- | ------ | ---------- | - | ------ | ------ |  | - | ------ | ------ | 
|                       |             |   | Due After December 31, 2001
|                       |             |   |                            
|                       |             |   | Fixed                       |        | Adjustable |   | Total 
|                       |             |   |                             |        |            |   |       
|                       |             |   | (In thousands)             
|One- to four-family    |             | $ | 14,749                      |        |            | $ | 34,601 |        |  | $ | 49,350 |       
|                      
|                      
|                      
|                      
|Multi-family           |             |   |                            |        |            |   | 5,893  |        |  |   | 5,893  |       
|                      
|                      
|                      
|                      
|Commercial real estate |             |   |                            |        |            |   | 249    |        |  |   | 249    |       
|                      
|                      
|                      
|                      
|Consumer               |             |   | 1,056                       |        |            |   | 123    |        |  |   | 1,179  |       
|                       |             |   |                             |        |            |   |        |        |  |   |        |       
|                       | Total loans |   | $                           | 15,805 |            |   | $      | 40,866 |  |   | $      | 56,671 | 
|                       |             |   |                             |        |            |   |        |        |  |   |        |       

Loan Originations.The following table sets forth the Banks loan
originations, purchases, sales and principal repayment information for the
periods indicated:

|                                      |                                         |   |                    |         |      |   |        |        |  
|------------------------------------- | --------------------------------------- | - | ------------------ | ------- | ---- | - | ------ | ------ | -
|                                      |                                         |   | For the Year Ended
|                                      |                                         |   | December 31,      
|                                      |                                         |   |                   
|                                      |                                         |   | 2000               |         | 1999
|                                      |                                         |   |                    |         |     
|                                      |                                         |   | (In thousands)    
|Loans receivable, beginning of period |                                         | $ | 65,135             |         |      | $ | 38,462 |       
|                                     
|                                     
|                                     
|                                     
|Loans originated: (1)                
|                                     
|                                     
|                                     
|                                     
|                                      | One- to four-family(2)                  |   |                    | 14,261  |      |   |        | 33,294 |  
|                                     
|                                     
|                                     
|                                     
|                                      | Multi-family                            |   |                    | 938     |      |   |        | 4,377  |  
|                                     
|                                     
|                                     
|                                     
|                                      | Commercial real estate                  |   |                    | 250     |      |   |        |       |  
|                                     
|                                     
|                                     
|                                     
|                                      | Consumer(3)                             |   |                    | 1,085   |      |   |        | 1,220  |  
|                                     
|                                     
|                                     
|                                     
|Loans purchased:                     
|                                     
|                                     
|                                     
|                                     
|                                      | One- to four-family                     |   |                    |        |      |   |        | 831    |  
|                                     
|                                     
|                                     
|                                     
|                                      | Multi-family                            |   |                    |        |      |   |        | 1,600  |  
|                                     
|                                     
|                                     
|                                     
|Loans sold:                          
|                                     
|                                     
|                                     
|                                     
|                                      | One- to four-family                     |   |                    | (13,798 | )    |   |        | (4,805 | )
|                                     
|                                     
|                                     
|                                     
|                                      | Multi-family                            |   |                    |        |      |   |        | (300   | )
|                                     
|                                     
|                                     
|                                     
|Principal repayments                  |                                         |   | (9,761             | )       |      |   | (9,676 | )     
|                                     
|                                     
|                                     
|                                     
|Other changes, net                    |                                         |   | (22                | )       |      |   | 132    |       
|                                      |                                         |   |                    |         |      |   |        |       
|                                      | Increase (decrease) in loans
receivable |   |                    | (7,047  | )    |   |        | 26,673 |  
|                                      |                                         |   |                    |         |      |   |        |       
|Loans receivable, end of period       |                                         | $ | 58,088             |         |      | $ | 65,135 |       
|                                      |                                         |   |                    |         |      |   |        |       



---

|(1) |  | Includes loans originated through brokers and Lenox Mortgage Corp.                                   
|--- |  | -----------------------------------------------------------------------------------------------------
|   
|   
|   
|   
|(2) |  | Includes second mortgage loans and construction loans on residential one-
to four- family properties.
|   
|   
|   
|   
|(3) |  | Includes loans secured by automobiles, boats, common stock, savings
accounts and unsecured loans.    

One- to Four-Family Residential Mortgage Lending.The Bank offers both
fixed-rate and adjustable-rate mortgage loans secured by one- to four-family
residences, primarily owner-occupied, located in the Banks primary market
area, with maturities up to thirty years. Substantially all of such loans are
secured by property located in Hamilton County, Ohio.

At December 31, 2000, $49.4 million or 85.3% of the Banks total loan
portfolio were one- to four-family residential mortgage loans. Of the one- to
four-family residential mortgage loans outstanding at that date, 30.0% were
fixed-rate loans, and 70.0% were adjustable-rate

5



---



##### Table of Contents



mortgage (ARM) loans. Currently, the interest rate for the Banks ARM loans are tied to the one and
three year Constant Maturity Index (CMI). However, in the past, the Banks
index was based upon the monthly national median cost of funds as reported by
the OTS, which lags behind CMI and the one year U.S. Treasury index and which
results in those loans repricing at interest rates that may be higher or lower
than the prevailing market rates. Approximately $2.9 million of the Banks ARM
loans, or 8.4% of the Banks total ARM loans, are based on that index, which
adversely affects the Banks results of operations in an increasing rate
environment because loans may be repricing at a rate that is slower than the
Banks cost of funds. The Bank does not intend to offer one- to four-family
ARM loans based on a lagging index in the future and has standardized the
margin it uses, which is currently at least 2.75%. The Bank currently offers a
number of adjustable-rate mortgage loan programs with interest rates which
adjust either annually or every three-year period. Such interest rate
adjustments are limited to a 2% annually and 5% or 6% over the life of the loan
for the Banks 15-year ARMs and 30-year ARMs, respectively. The Bank also
offers mortgage loans with balloon features. In general, these loans may be
refinanced on the balloon date if the customer completes a new loan application
and meets all of the underwriting criteria required of new customers. The Bank
currently has no mortgage loans that are subject to negative amortization.

The origination of adjustable-rate residential mortgage loans, as opposed
to fixed-rate residential mortgage loans, helps reduce the Banks exposure to
increases in interest rates. However, adjustable-rate loans generally pose
credit risks not inherent in fixed-rate loans, primarily because as interest
rates rise, the underlying payments of the borrower rise, thereby increasing
the potential for default. At the same time, the marketability of the
underlying property may be adversely affected. Periodic and lifetime caps on
adjustable-rate mortgage loans help to reduce these risks but also limit the
interest rate sensitivity of such loans.

The Banks policy is to originate one- to four-family residential mortgage
loans in amounts up to 80% of the lower of the appraised value or the selling
price of the property securing the loan and up to 95% of the appraised value
or selling price if private mortgage insurance is obtained. Mortgage loans
originated by the Bank generally include due-on-sale clauses which provide the
Bank with the contractual right to deem the loan immediately due and payable in
the event the borrower transfers ownership of the property without the Banks
consent. Due-on-sale clauses are an important means of adjusting the rates on
the Banks fixed-rate mortgage loan portfolio and the Bank has generally
exercised its rights under these clauses.

The Bank also offers second mortgage loans based upon the one-year CMI.
The second mortgage loans are originated as fixed rate loans for the first five
years and thereafter adjust on an annual basis. At December 31, 2000, the Bank
had second mortgage loans totaling $1.5 million.

Consumer Lending.The Banks portfolio of consumer loans consists of a
combination of automobile, boat, common stock and savings secured loans. The
Bank also offers unsecured loans up to $5,000 for a maximum three-year term.
Consumer loans are generally originated in the Banks primary market area and
generally have maturities of one to five years. The Banks automobile and boat
loans have a maximum loan amount of $50,000 for a maximum term of 66 months.
The consumer loans secured by common stock are originated with terms up to five
years and the loan amounts are limited to 80% of the value of the common stock
securing the loan. The Bank reviews the loans secured by common stock on a
quarterly basis and requires that borrowers pledge additional collateral in the
event fluctuations in the

6



---



##### Table of Contents



market value of the pledged common stock results in
the value of the collateral dropping below the required loan to value ratio of
80%.

Consumer loans are shorter term and generally contain higher interest
rates than residential mortgage loans. Management believes the consumer loan
market has been helpful in improving its spread between average loan yield and
costs of funds and at the same time improved the matching of its rate sensitive
assets and liabilities.

The underwriting standards employed by the Bank for consumer loans include
a determination of the applicants credit history and an assessment of the
applicants ability to meet existing obligations and payments on the proposed
loan. The stability of the applicants monthly income may be determined by
verification of gross monthly income from primary employment, and additionally
from any verifiable secondary income. Creditworthiness of the applicant is of
primary consideration; however, the underwriting process also includes a
comparison of the value of the collateral in relation to the proposed loan
amount.

Consumer loans entail greater risks than one- to four-family residential
mortgage loans, particularly consumer loans that are secured by rapidly
depreciable assets such as automobiles or that are unsecured. In such cases,
repossessed collateral for a defaulted loan may not provide an adequate source
of repayment of the outstanding loan balance, since there is a greater
likelihood of damage, loss or depreciation of the underlying collateral.
Further, consumer loan collections are dependent on the borrowers continuing
financial stability, and therefore are more likely to be adversely affected by
job loss, divorce, illness or personal bankruptcy. Finally, the application of
various federal and state laws, including federal and state bankruptcy and
insolvency laws, may limit the amount which can be recovered on such loans in
the event of a default.

Multi-family and Construction Lending. The Bank originates a limited
amount of multi-family loan and construction loans. The Bank originates
multi-family loans secured by five or more unit real estate. The Bank also may
purchase multi-family loans from third-parties from time to time. Multi-family
loans bear greater risk than one- to four- family loans because the ability of
the borrower to pay frequently depends on the cash flow earned from use of the
property. However, such loans generally carry higher interest rates, which
generate greater income for the Bank. At December 31, 2000, the Banks largest
multi-family loan was $750,400. All multi-family loans were performing in
accordance with their respective terms as of December 31, 2000. Construction
loans are originated for the construction of residential one- to four- family
homes. The Bank approves the borrowers for the end loan financing on all
construction loans it originates.

Loan Approval Procedures and Authority.The Board of Directors authorizes
the lending activity of the Bank, establishes the lending policies of the Bank
and reviews properties offered as security. Consumer loans conforming to the
Banks loan policy may be approved by the President or the Vice President -
Operations. Real estate loans in amounts up to $240,000 may be approved by
either the President or the Vice President - Operations. Loans for between
$240,000 and less than $500,000 may be approved by two of the Banks executive
officers. Loans over $500,000 must be approved by the Board of Directors.

For all loans originated by the Bank, upon receipt of a completed loan
application from a prospective borrower, a credit report is ordered and certain
other information is verified by an independent credit agency. If necessary,
additional financial information may be required. An

7



---



##### Table of Contents



appraisal of real estate
intended to secure a proposed loan generally is required to be performed by an
appraiser designated and approved by the Bank. For proposed mortgage loans,
the Board annually approves independent appraisers used by the Bank and
approves the Banks appraisal policy. The Banks policy is to obtain title
opinions or title insurance and hazard insurance on all mortgage loans.

Delinquencies and Classified Assets.Management and the Board of
Directors perform a monthly review of all delinquent loans. The procedures
taken by the Bank with respect to delinquencies vary depending on the nature of
the loan and period of delinquency. The Bank generally requires that
delinquent mortgage loans be reviewed and that a written late charge notice be
mailed no later than the 15th day of delinquency. The Banks policies provide
that telephone contact will be attempted to ascertain the reasons for
delinquency and the prospects of repayment. When contact is made with the
borrower at any time prior to foreclosure, the Bank will attempt to obtain full
payment or work out a repayment schedule with the borrower to avoid
foreclosure. It is the Banks policy to place all loans that are delinquent by
three or more payments on non-accrual status, resulting in the Bank no longer
accruing interest on such loans and reversing any interest previously accrued
but not collected. A non-accrual loan may be restored to accrual status when
delinquent principal and interest payments are brought current and future
monthly principal and interest payments are expected to be collected. Property
acquired by the Bank as a result of foreclosure on a mortgage loan is
classified as real estate owned and is recorded at the lower of the unpaid
principal balance or fair value less costs to sell at the date of acquisition
and thereafter. Upon foreclosure, the Bank generally require an appraisal of
the property and, thereafter, appraisals of the property on an annual basis and
external inspections on at least a quarterly basis.

The Banks Classification of Assets Policy requires that the Bank utilize
an internal asset classification system as a means of reporting problem and
potential problem assets. The Bank currently classifies problem and potential
problem assets as Substandard, Doubtful or Loss assets. An asset is
considered Substandard if it is inadequately protected by the current net worth
and paying capacity of the obligor or of the collateral pledged, if any.
Substandard assets include those characterized by the distinct possibility that
the insured institution will sustain some loss if the deficiencies are not
corrected. Assets classified as Doubtful have all of the weaknesses inherent
in those classified Substandard with the added characteristic that the
weaknesses present make collection or liquidation in full, on the basis of
currently existing facts, conditions and values, highly questionable and
improbable. Assets classified as Loss are those considered uncollectible and
of such little value that their continuance as assets without the establishment
of a specific loss reserve is not warranted. Assets which do not currently
expose the insured institution to sufficient risk to warrant classification in
one of the aforementioned categories but possess weaknesses are required to be
designated Special Mention.

When an insured institution classifies one or more assets, or portions
thereof, as Substandard or Doubtful, it is required to establish a general
valuation allowance for loan losses in an amount deemed prudent by management.
General valuation allowances, which is a regulatory term, represent loss
allowances which have been established to recognize the inherent risk
associated with lending activities, but which, unlike specific allowances, have
not been allocated to particular problem assets. When an insured institution
classifies one or more assets, or portions thereof, as Loss, it is required
either to establish a specific allowance for losses equal to 100% of the amount
of the asset so classified or to charge off such amount.

8



---



##### Table of Contents



The FDIC, in conjunction with the other federal banking agencies, has
adopted an interagency policy statement on the allowance for loan and lease
losses. The policy statement provides guidance for financial institutions on
both the responsibilities of management for the assessment and establishment of
adequate allowances and guidance for banking agency examiners to use in
determining the adequacy of general valuation guidelines. Generally, the
policy statement recommends that institutions have effective systems and
controls to identify, monitor and address asset quality problems; that
management analyze all significant factors that affect the collectibility of
the portfolio in a reasonable manner; and that management establish acceptable
allowance evaluation processes that meet the objectives set forth in the policy
statement. As a result of the declines in local and regional real estate
market values and the significant losses experienced by many financial
institutions, there has been a greater level of scrutiny by regulatory
authorities of the loan portfolios of financial institutions undertaken as part
of the examination of institutions by the FDIC. While the Bank believes that
it has established an adequate allowance for loan losses, there can be no
assurance that regulators, in reviewing the Banks loan portfolio, will not
request the Bank to materially increase at that time its allowance for loan
losses, thereby negatively affecting the Banks financial condition and
earnings at that time. Although management believes that adequate specific and
general loan loss allowances have been established, actual losses are dependent
upon future events and, as such, further additions to the level of specific and
general loan loss allowances may become necessary.

The President of the Bank reviews the Banks loans on a monthly basis and
classifies loans on a quarterly basis and reports the results of her review to
the Board of Directors. The Bank classifies loans in accordance with the
management guidelines described above. At December 31, 2000, the Bank had the
following classified assets:

|                    |       |  |             |   |           |   |          |     |                 |  |          |                        |           |   |          |   |           |  |   |   |  |   |   |   |  |  |   |   |  |   |     |     | 
|------------------- | ----- |  | ----------- | - | --------- | - | -------- | --- | --------------- |  | -------- | ---------------------- | --------- | - | -------- | - | --------- |  | - | - |  | - | - | - |  |  | - | - |  | - | --- | --- | 
|                    |       |  | Substandard |   | Doubtful  |   | Loss     |     | Special Mention
|                    |       |  |             |   |           |   |          |     |                
|                    |       |  | Number      |   | Principal |   | Number   |     | Principal       |  | Number   |                        | Principal |   | Number   |   | Principal
|                    |       |  | of Loans    |   | Balance   |   | of Loans |     | Balance         |  | of Loans |                        | Balance   |   | of Loans |   | Balance  
|                    |       |  |             |   |           |   |          |     |                 |  |          |                        |           |   |          |   |          
|                    |       |  |             |   |           |   |          |     |                 |  |          | (Dollars in thousands)
|One- to four-family |       |  | 3           |   |           | $ | 146      |     |                 |  |         |                        |           | $ |         |   |           |  |  |   |  | $ |  |   |  |  | 2 |   |  | $ | 179 |    
|                   
|                   
|                   
|                   
|Consumer            |       |  |            |   |           |   |         |     |                 |  | 2        |                        |           |   | 6        |   |           |  | 3 |   |  |   | 8 |   |  |  | 6 |   |  |   | 257 |    
|                    |       |  |             |   |           |   |          |     |                 |  |          |                        |           |   |          |   |           |  |   |   |  |   |   |   |  |  |   |   |  |   |     |    
|                    | Total |  |             | 3 |           |   | $        | 146 |                 |  |          | 2                      |           |   | $        | 6 |           |  |   | 3 |  |   | $ | 8 |  |  |   | 8 |  |   | $   | 436 | 
|                    |       |  |             |   |           |   |          |     |                 |  |          |                        |           |   |          |   |           |  |   |   |  |   |   |   |  |  |   |   |  |   |     |    

9



---



##### Table of Contents



The following table sets forth delinquencies in the Banks loan portfolio
as of the dates indicated:

|                                      |       |  |            |   |                 |   |                        |     |          |  |   |    |           |   |      |     | 
|------------------------------------- | ----- |  | ---------- | - | --------------- | - | ---------------------- | --- | -------- |  | - | -- | --------- | - | ---- | --- | 
|                                      |       |  |            |   |                 |   | At December 31, 2000  
|                                      |       |  |            |   |                 |   |                       
|                                      |       |  | 60-89 Days |   | 90 Days or More
|                                      |       |  |            |   |                
|                                      |       |  |            |   |                 |   | Principal              |     |          |  |   |    | Principal
|                                      |       |  | Number     |   | Balance         |   | Number                 |     | Balance 
|                                      |       |  | of Loans   |   | of Loans        |   | of Loans               |     | of Loans
|                                      |       |  |            |   |                 |   |                        |     |         
|                                      |       |  |            |   |                 |   | (Dollars in thousands)
|One- to four-family                   |       |  | 3          |   |                 | $ | 138                    |     |          |  | 3 |    |           | $ | 182  |    
|                                     
|                                     
|                                     
|                                     
|Consumer                              |       |  | 4          |   |                 |   | 32                     |     |          |  | 7 |    |           |   | 267  |    
|                                      |       |  |            |   |                 |   |                        |     |          |  |   |    |           |   |      |    
|                                      | Total |  |            | 7 |                 |   | $                      | 170 |          |  |   | 10 |           |   | $    | 449 | 
|                                      |       |  |            |   |                 |   |                        |     |          |  |   |    |           |   |      |    
|Delinquent loans to total gross loans |       |  |            |   |                 |   | 0.29                   | %   |          |  |   |    |           |   | 0.77 | %  
|                                      |       |  |            |   |                 |   |                        |     |          |  |   |    |           |   |      |    

|                                      |       |  |            |   |                 |   |                      |     |          |  |   |   |           |   |      |    | 
|------------------------------------- | ----- |  | ---------- | - | --------------- | - | -------------------- | --- | -------- |  | - | - | --------- | - | ---- | -- | 
|                                      |       |  |            |   |                 |   | At December 31, 1999
|                                      |       |  |            |   |                 |   |                     
|                                      |       |  | 60-89 Days |   | 90 Days or More
|                                      |       |  |            |   |                
|                                      |       |  |            |   |                 |   | Principal            |     |          |  |   |   | Principal
|                                      |       |  | Number     |   | Balance         |   | Number               |     | Balance 
|                                      |       |  | of Loans   |   | of Loans        |   | of Loans             |     | of Loans
|                                      |       |  |            |   |                 |   |                      |     |         
|One- to four-family                   |       |  | 3          |   |                 | $ | 213                  |     |          |  | 1 |   |           | $ | 51   |   
|                                     
|                                     
|                                     
|                                     
|Consumer                              |       |  | 3          |   |                 |   | 6                    |     |          |  | 1 |   |           |   | 1    |   
|                                      |       |  |            |   |                 |   |                      |     |          |  |   |   |           |   |      |   
|                                      | Total |  |            | 6 |                 |   | $                    | 219 |          |  |   | 2 |           |   | $    | 52 | 
|                                      |       |  |            |   |                 |   |                      |     |          |  |   |   |           |   |      |   
|Delinquent loans to total gross loans |       |  |            |   |                 |   | 0.33                 | %   |          |  |   |   |           |   | 0.08 | % 
|                                      |       |  |            |   |                 |   |                      |     |          |  |   |   |           |   |      |   

10



---



##### Table of Contents



Non-Accrual and Past-Due Loans.The following table sets forth
information regarding loans contractually past due 90 days or more. At such
date, there were no accruing loans past due 90 days or more. If all
non-accrual loans had been performing in accordance with their original term
and had been outstanding from the earlier of the beginning of the period or
origination, the Bank would have additional interest income of $15,939, for the
year ended December 31, 2000, none of which was included in net income for the
period. The Bank had no troubled debt restructurings within the meaning of
SFAS No. 15 at any of the dates indicated.

At December 31, 2000, the Bank had no real estate owned (REO). For a
description of how the Bank would treat REO, see the Financial Statements and
Notes thereto appearing elsewhere in this Form 10-KSB.

|                                                                 |                             |   |                        |     |      |   |      |    | 
|---------------------------------------------------------------- | --------------------------- | - | ---------------------- | --- | ---- | - | ---- | -- | 
|                                                                 |                             |   | At December 31,       
|                                                                 |                             |   |                       
|                                                                 |                             |   | 2000                   |     | 1999
|                                                                 |                             |   |                        |     |     
|                                                                 |                             |   | (Dollars in thousands)
|Non-accrual one- to four-family loans
delinquent 90 days or more |                             | $ | 182                    |     |      | $ | 51   |   
|                                                                
|                                                                
|                                                                
|                                                                
|Non-accrual consumer loans
delinquent 90 days or more            |                             |   | 17                     |     |      |   | 1    |   
|                                                                 |                             |   |                        |     |      |   |      |   
|Total non-performing loans                                       |                             |   | 199                    |     |      |   | 52   |   
|                                                                
|                                                                
|                                                                
|                                                                
|Total investment in REO                                          |                             |   |                       |     |      |   |     |   
|                                                                 |                             |   |                        |     |      |   |      |   
|                                                                 | Total non-performing assets |   | $                      | 199 |      |   | $    | 52 | 
|                                                                 |                             |   |                        |     |      |   |      |   
|Non-performing loans to total loans                              |                             |   | 0.34                   | %   |      |   | 0.08 | % 
|                                                                
|                                                                
|                                                                
|                                                                
|Non-performing assets to total assets                            |                             |   | 0.28                   | %   |      |   | 0.07 | % 

Allowance for Loan Losses.The allowance for loan losses is increased by
changing provisions for loan losses against income based on managements
evaluation of the risks inherent in its loan portfolio and the general economy.
The allowance for loan losses is maintained at an amount management considers
adequate to cover estimated losses in loans receivable. While management
believes the Banks allowance for loan losses is sufficient to cover losses
inherent in its loan portfolio at this time, no assurances can be given that
the Banks level of allowance for loan losses will be sufficient to cover
future loan losses incurred by the Bank or that future adjustments to the
allowance for loan losses will not be necessary if economic and other
conditions differ substantially from the economic and other conditions used by
management to determine the current level of the allowance for loan losses.
The allowance is based upon a number of factors, including asset
classifications, economic trends, industry experience and trends, industry and
geographic concentrations, estimated collateral values, managements assessment
of the credit risk inherent in the portfolio, historical loan loss experience
and the Banks underwriting policies. The Bank will continue to monitor and
modify its allowances for loan losses as conditions dictate. Various
regulatory agencies, as an integral part of their examination process,
periodically review the Banks valuation allowance. These agencies may require
the Bank to establish additional valuation allowances, based on their judgments
of the information available at the time of the examination.

The following table sets forth activity in the Banks allowance for loan
losses for the periods indicated:

11



---



##### Table of Contents



|                                                                                           |          |                   |       |                        |    |      |        |    |    | 
|------------------------------------------------------------------------------------------ | -------- | ----------------- | ----- | ---------------------- | -- | ---- | ------ | -- | -- | 
|                                                                                           |          |                   |       | At or For the Year    
|                                                                                           |          |                   |       | Ended December 31,    
|                                                                                           |          |                   |       |                       
|                                                                                           |          |                   |       | 2000                   |    | 1999
|                                                                                           |          |                   |       |                        |    |     
|                                                                                           |          |                   |       | (Dollars in thousands)
|Allowance for loan losses:                                                                
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                          
|Balance at beginning of period                                                             |          | $                 | 90    |                        |    | $    | 66     |   
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                          
|Provision for loan losses                                                                  |          |                   | 59    |                        |    |      | 40     |   
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                          
|Charge-offs:                                                                              
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                           | Consumer |                   |       | 31                     |    |      |        | 22 |   
|                                                                                           |          |                   |       |                        |    |      |        |   
|                                                                                           |          | Total charge-offs |       |                        | 31 |      |        |    | 22 | 
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                          
|Recoveries:                                                                               
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                           | Consumer |                   |       | 8                      |    |      |        | 6  |   
|                                                                                           |          |                   |       |                        |    |      |        |   
|                                                                                           |          | Total recoveries  |       |                        | 8  |      |        |    | 6  | 
|                                                                                           |          |                   |       |                        |    |      |        |   
|Net charge-offs                                                                            |          |                   | 23    |                        |    |      | 18     |   
|                                                                                           |          |                   |       |                        |    |      |        |   
|Balance at end of period                                                                   |          | $                 | 126   |                        |    | $    | 90     |   
|                                                                                           |          |                   |       |                        |    |      |        |   
|Ratio of net loan charge-offs
during the period to average
loans outstanding during period |          |                   | 0.04  | %                      |    |      | 0.03   | % 
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                          
|Ratio of allowance for loan losses
to gross loans at end of period                         |          |                   | 0.22  |                        |    |      | 0.14   |   
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                          
|Ratio of allowance for loan losses
to non-performing loans
at end of period                |          |                   | 63.32 |                        |    |      | 173.08 |   

12



---



##### Table of Contents



The following table set forth the Banks allocation of allowance for loan
losses by loan category, the percent of the allocated allowance to the total
allowance and the percent of each specific loan category to total loans. The
portion of the allowance for loan losses allocated to each loan category does
not represent the total available for future losses which may occur within the
loan category since the total allowance for loan losses is a valuation reserve
applicable to the entire loan portfolio.

|                    |                                 |      |                        |     |           |  |             |        |                  |  |           |        |             |   |            |    |                  |  |       |        |   |  |       |        |  
|------------------- | ------------------------------- | ---- | ---------------------- | --- | --------- |  | ----------- | ------ | ---------------- |  | --------- | ------ | ----------- | - | ---------- | -- | ---------------- |  | ----- | ------ | - |  | ----- | ------ | -
|                    |                                 |      | At December 31,       
|                    |                                 |      |                       
|                    |                                 | 2000 |                        |     | 1999     
|                    |                                 |      |                        |     |          
|                    |                                 |      |                        |     |           |  | Percent of  |        | Percent of       |  |           |        |             |   | Percent of |    | Percent of      
|                    |                                 |      |                        |     |           |  | Allowance   |        | Loans in         |  |           |        |             |   | Allowance  |    | Loans in        
|                    |                                 |      |                        |     |           |  | to Total    |        | Each Category to |  |           |        |             |   | to Total   |    | Each Category to
|                    |                                 |      | Amount                 |     | Allowance |  | Total Loans |        | Amount           |  | Allowance |        | Total Loans
|                    |                                 |      |                        |     |           |  |             |        |                  |  |           |        |            
|                    |                                 |      | (Dollars in thousands)
|                   
|                   
|                   
|                   
|                   
|                   
|                   
|                   
|                   
|                   
|                   
|                   
|One- to four-family |                                 | $    | 97                     |     |           |  | 76.98       | %      |                  |  | 96.88     | %      |             | $ | 54         |    |                  |  | 60.00 | %      |   |  | 96.98 | %     
|                   
|                   
|                   
|                   
|Consumer            |                                 |      | 29                     |     |           |  | 23.02       |        |                  |  | 3.12      |        |             |   | 36         |    |                  |  | 40.00 |        |   |  | 3.02  |       
|                    |                                 |      |                        |     |           |  |             |        |                  |  |           |        |             |   |            |    |                  |  |       |        |   |  |       |       
|                    | Total
allowance
for
loan losses |      | $                      | 126 |           |  |             | 100.00 | %                |  |           | 100.00 | %           |   | $          | 90 |                  |  |       | 100.00 | % |  |       | 100.00 | %
|                    |                                 |      |                        |     |           |  |             |        |                  |  |           |        |             |   |            |    |                  |  |       |        |   |  |       |       

Investment Activities

Federal and state regulations require the Bank to maintain a prudent
amount of liquid assets to protect the safety and soundness of the Bank.
Therefore, the investment policy of the Bank as established by the Board of
Directors attempts to provide and maintain liquidity, generate a favorable
return on investments without incurring undue interest rate and credit risk and
complement the Banks lending activities. The Banks policies generally limit
investments to government and federal agency-backed securities and other
non-government guaranteed securities, including corporate debt obligations,
that are investment grade. The Banks policies provide the authority to invest
in U.S. Treasury and U.S. Government guaranteed securities, securities backed
by federal agencies such as Fannie Mae, Freddie Mac and the Federal Farm Credit
Bureau, mortgage-backed securities which are backed by federal agency
securities, including CMOs, obligations of state and political subdivisions
with at least an A rating, certificates of deposit purchased through the FHLB
and securities issued by mutual funds which invest in securities consistent
with the Banks allocable investments. The Banks policies provide that the
Chief Financial Officer is authorized to execute all transactions within
specified limits which are reviewed by the Board of Directors on a monthly
basis. Such limit is currently $1.0 million. From time to time the Board of
Directors may authorize the Chief Financial Officer to exceed the policy
limitations.

At December 31, 2000, $7.3 million of investment and mortgage-backed
securities were classified as available for sale. Included in this total, at
December 31, 2000, the Bank had $2.7 million in U.S. Government and agencies
securities, $509,000 in mortgage-backed securities and $4.1 million in CMOs. A
CMO is a special type of pass-through debt in which the stream of principal and
interest payments on the underlying mortgages or mortgage-backed securities is
used to create classes with different maturities, and, in some cases,
amortization schedules, as well as a residual interest, with each class
possessing different characteristics. Investments in mortgage-backed
securities carry a reduced credit risk as compared to whole loans; however,
such securities involve a risk that actual prepayments will exceed prepayments

13



---



##### Table of Contents



estimated over the life of the security which may result in a loss of any
premium paid for such instruments thereby reducing the net yield on such
securities. In addition, if interest rates increase, the market value of such
securities may be adversely affected which, in turn, would adversely affect
stockholders equity to the extent such securities are held for sale. In
contrast to mortgage-backed securities in which cash flow is received (and,
hence prepayment risk is shared) pro rata by all holders, the cash flows from
the mortgages or mortgage-backed securities underlying CMOs are segmented and
paid in accordance with a predetermined priority to investors holding various
tranches of such securities or obligations. A particular tranche may therefore
carry prepayment risk that differs from that of both the underlying collateral
or other tranches.

The following table sets forth certain information regarding the carrying
and market values of the Banks federal funds sold and other short-term
investments and investment securities at the dates indicated:

|                                |                               |       |       |                 |        |       |       |                |        |       |     |       |       |   |     |       |       | 
|------------------------------- | ----------------------------- | ----- | ----- | --------------- | ------ | ----- | ----- | -------------- | ------ | ----- | --- | ----- | ----- | - | --- | ----- | ----- | 
|                                |                               |       |       | At December 31,
|                                |                               |       |       |                
|                                |                               |       |       | 2000            |        | 1999 
|                                |                               |       |       |                 |        |      
|                                |                               |       |       | Amortized       |        | Fair  |       | Amortized      |        | Fair 
|                                |                               |       |       | Cost            |        | Value |       | Cost           |        | Value
|                                |                               |       |       |                 |        |       |       |                |        |      
|                                |                               |       |       |                 |        |       |       | (In thousands)
|Certificates of deposit(1)      |                               | $     | 98    |                 |        | $     | 98    |                |        | $     | 193 |       |       | $ | 193 |      
|                               
|                               
|                               
|                               
|Other interest-earning deposits |                               |       | 1,856 |                 |        |       | 1,856 |                |        |       | 132 |       |       |   | 132 |      
|                               
|                               
|                               
|                               
|Investment securities:         
|                               
|                               
|                               
|                               
|                                | FHLB stock                    |       |       | 1,765           |        |       |       | 1,765          |        |       |     | 1,583 |       |   |     | 1,583 |      
|                               
|                               
|                               
|                               
|                                | U. S. government obligations  |       |       | 2,700           |        |       |       | 2,661          |        |       |     | 2,702 |       |   |     | 2,535 |      
|                               
|                               
|                               
|                               
|                                | Mortgage-backed securities(2) |       |       | 4,671           |        |       |       | 4,559          |        |       |     | 4,761 |       |   |     | 4,759 |      
|                                |                               |       |       |                 |        |       |       |                |        |       |     |       |       |   |     |      
|                                |                               | Total |       | $               | 11,090 |       |       | $              | 10,939 |       |     | $     | 9,371 |   |     | $     | 9,202 | 
|                                |                               |       |       |                 |        |       |       |                |        |       |     |       |       |   |     |      



---

|(1) |  | Includes certificates of deposit with original maturities of greater than
90 days.
|--- |  | ----------------------------------------------------------------------------------
|   
|   
|   
|   
|(2) |  | Includes mortgage-backed securities and collateralized mortgage
obligations.      

14



---



##### Table of Contents



The table below sets forth certain information regarding the carrying
value, weighted average yields and contractual maturities of the Banks
certificates of deposit, other interest-bearing deposits and investment
securities as of December 31, 2000.

|                                |                               |       |       |                      |       |                    |      |                    |      |                     |   |               |       |                |   |          |      |         |   |                        |     |         |   |      |      |          |   |       |       |  |   |          |      |   |       |       |        |  |      |      |      |  
|------------------------------- | ----------------------------- | ----- | ----- | -------------------- | ----- | ------------------ | ---- | ------------------ | ---- | ------------------- | - | ------------- | ----- | -------------- | - | -------- | ---- | ------- | - | ---------------------- | --- | ------- | - | ---- | ---- | -------- | - | ----- | ----- |  | - | -------- | ---- | - | ----- | ----- | ------ |  | ---- | ---- | ---- | -
|                                |                               |       |       | At December 31, 2000
|                                |                               |       |       |                     
|                                |                               |       |       |                      |       |                    |      |                    |      |                     |   | More than One |       | More than Five
|                                |                               |       |       | One Year or Less     |       | Year to Five Years |      | Years to Ten Years |      | More than Ten Years |   | Total        
|                                |                               |       |       |                      |       |                    |      |                    |      |                     |   |              
|                                |                               |       |       |                      |       |                    |      | Weighted           |      |                     |   |               |       | Weighted       |   |          |      |         |   | Weighted               |     |         |   |      |      | Weighted |   |       |       |  |   | Weighted
|                                |                               |       |       | Carrying             |       | Average            |      | Carrying           |      | Average             |   | Carrying      |       | Average        |   | Carrying |      | Average |   | Carrying               |     | Average
|                                |                               |       |       | Value                |       | Yield              |      | Value              |      | Yield               |   | Value         |       | Yield          |   | Value    |      | Yield   |   | Value                  |     | Yield  
|                                |                               |       |       |                      |       |                    |      |                    |      |                     |   |               |       |                |   |          |      |         |   |                        |     |        
|                                |                               |       |       |                      |       |                    |      |                    |      |                     |   |               |       |                |   |          |      |         |   | (Dollars in thousands)
|Certificates of Deposit(1)      |                               | $     | 98    |                      |       |                    | 6.08 | %                  |      | $                   |  |               |       |                |  | %        |      | $       |  |                        |     |         |  | %    |      | $        |  |       |       |  |  | %        |      | $ | 98    |       |        |  | 6.08 | %   
|                               
|                               
|                               
|                               
|Other interest-bearing deposits |                               |       | 1,856 |                      |       |                    | 5.80 |                    |      |                     |  |               |       |                |  |          |      |         |  |                        |     |         |  |      |      |          |  |       |       |  |  |          |      |   | 1,856 |       |        |  | 5.80 |     
|                               
|                               
|                               
|                               
|Investment securities:         
|                               
|                               
|                               
|                               
|                                | U.S. government
obligations   |       |       |                     |       |                    |      |                   |      |                     |   | 1,201         |       |                |   | 6.02     |      |         |   | 493                    |     |         |   | 6.65 |      |          |   | 967   |       |  |   | 6.52     |      |   |       | 2,661 |        |  |      | 6.30 |     
|                               
|                               
|                               
|                               
|                                | FHLB stock                    |       |       |                     |       |                    |      |                   |      |                     |   |              |       |                |   |         |      |         |   |                       |     |         |   |     |      |          |   | 1,765 |       |  |   | 7.50     |      |   |       | 1,765 |        |  |      | 7.50 |     
|                               
|                               
|                               
|                               
|                                | Mortgage-backed
securities(2) |       |       |                     |       |                    |      |                   |      |                     |   |              |       |                |   |         |      |         |   | 164                    |     |         |   | 8.20 |      |          |   | 4,395 |       |  |   | 7.48     |      |   |       | 4,559 |        |  |      | 7.51 |     
|                                |                               |       |       |                      |       |                    |      |                    |      |                     |   |               |       |                |   |          |      |         |   |                        |     |         |   |      |      |          |   |       |       |  |   |          |      |   |       |      
|                                |                               | Total |       | $                    | 1,954 |                    |      |                    | 5.81 | %                   |   | $             | 1,201 |                |   |          | 6.02 | %       |   | $                      | 657 |         |   |      | 6.96 | %        |   | $     | 7,127 |  |   |          | 7.35 | % |       | $     | 10,939 |  |      |      | 6.91 | %
|                                |                               |       |       |                      |       |                    |      |                    |      |                     |   |               |       |                |   |          |      |         |   |                        |     |         |   |      |      |          |   |       |       |  |   |          |      |   |       |      



---

|(1) |  | Includes certificates of deposit with original maturities of greater than 90 days.
|--- |  | ----------------------------------------------------------------------------------
|   
|   
|   
|   
|(2) |  | Includes mortgage-backed securities and collateralized mortgage obligations.      

15



---



##### Table of Contents



Source of Funds

General.Deposits, loan repayments and prepayments, and cash flows
generated from operations are the primary source of the Banks funds for use in
lending, investing and for other general purposes. The Bank also relies upon
advances from the FHLB.

Deposits.The Bank offers a variety of deposit accounts with a range of
interest rates and terms. The Banks current deposit products include savings,
checking, money market and certificate of deposit accounts ranging in term from
ninety days to five years. Included in the Banks certificate of deposit
accounts are certificates of deposit with balances in excess of $100,000 (jumbo
certificates) and Individual Retirement Accounts (IRAs).

Deposits are obtained primarily from residents of Hamilton County, Ohio.
The Bank seeks to attract deposit accounts by offering a variety of products,
competitive rates, extended hours and personal service. The Bank has sought to
attract new depositors through traditional methods of advertising, including
print media advertising. The Bank does not generally advertise outside of its
market area or utilize the services of deposit brokers.

The Bank sets interest rates on its deposits on a weekly basis, based upon
a number of factors, including: the previous weeks deposit flow; a current
survey of a selected group of competitors rates for similar products; external
data which may influence interest rates; investment opportunities and loan
demand; and scheduled maturities.

The following table presents the deposit activity of the Bank for the
periods indicated.

|                            |                                                  |                       |        |                |        |      |        |       |        | 
|--------------------------- | ------------------------------------------------ | --------------------- | ------ | -------------- | ------ | ---- | ------ | ----- | ------ | 
|                            |                                                  |                       |        | 2000           |        | 1999
|                            |                                                  |                       |        |                |        |     
|                            |                                                  |                       |        | (In thousands)
|Balance beginning of period |                                                  | $                     | 39,436 |                |        | $    | 33,067 |      
|                           
|                           
|                           
|                           
|                            | Net increase (decrease)
before interest credited |                       |        | (4,750         | )      |      |        | 4,638 |       
|                           
|                           
|                           
|                           
|                            | Interest credited                                |                       |        | 1,858          |        |      |        | 1,731 |       
|                            |                                                  |                       |        |               
|                            |                                                  | Balance end of period |        | $              | 36,544 |      |        | $     | 39,436 | 
|                            |                                                  |                       |        |                |        |      |        |      

At December 31, 2000, the Bank had $3.7 million in certificate accounts in
amounts of $100,000 or more maturing as follows:

|                              |       |        |                        |       |  |  |          |      |  
|----------------------------- | ----- | ------ | ---------------------- | ----- |  |  | -------- | ---- | -
|                              |       |        |                        |       |  |  | Weighted
|Maturity Period               |       | Amount |                        | Rate 
|                              |       |        |                        |      
|                              |       |        | (Dollars in thousands)
|Three months or less          |       | $      | 908                    |       |  |  | 6.18     | %   
|                             
|                             
|                             
|                             
|Over three through six months |       |        | 351                    |       |  |  | 6.73     |     
|                             
|                             
|                             
|                             
|Over six through 12 months    |       |        | 850                    |       |  |  | 6.43     |     
|                             
|                             
|                             
|                             
|Over 12 months                |       |        | 1,616                  |       |  |  | 6.32     |     
|                              |       |        |                        |       |  |  |          |     
|                              | Total |        | $                      | 3,725 |  |  |          | 6.35 | %
|                              |       |        |                        |       |  |  |          |     

The following table sets forth the distribution of the Banks average
deposit accounts for the periods indicated and the weighted average interest
rates on each category of deposits

16



---



##### Table of Contents



presented.

|                              |  |         |                                 |          |  |          |        |          |  |                        |      |         |  |          |        |          |  |  |        |   |  |  |      |  
|----------------------------- |  | ------- | ------------------------------- | -------- |  | -------- | ------ | -------- |  | ---------------------- | ---- | ------- |  | -------- | ------ | -------- |  |  | ------ | - |  |  | ---- | -
|                              |  |         | For the Year Ended December 31,
|                              |  |         |                                
|                              |  |         |                                 |          |  | 2000     |        |          |  |                        |      |         |  |          |        | 1999    
|                              |  |         |                                 |         
|                              |  |         |                                 |          |  | Percent  |        |          |  |                        |      |         |  |          |        | Percent 
|                              |  |         |                                 |          |  | of Total |        | Weighted |  |                        |      |         |  | of Total |        | Weighted
|                              |  | Average |                                 | Average  |  | Average  |        | Average  |  | Average                |      | Average
|                              |  | Balance |                                 | Deposits |  | Rate     |        | Balance  |  | Deposits               |      | Rate   
|                              |  |         |                                 |          |  |          |        |          |  |                        |      |        
|                              |  |         |                                 |          |  |          |        |          |  | (Dollars in thousands)
|Statement savings accounts    |  | $       | 6,111                           |          |  |          | 16.21  | %        |  |                        | 3.73 | %       |  | $        | 5,009  |          |  |  | 13.29  | % |  |  | 2.62 | %
|                             
|                             
|                             
|                             
|NOW and Money Market accounts |  |         | 5,090                           |          |  |          | 13.50  |          |  |                        | 2.14 |         |  |          | 5,372  |          |  |  | 14.25  |   |  |  | 2.36 |  
|                             
|                             
|                             
|                             
|Total certificate accounts    |  |         | 26,493                          |          |  |          | 70.29  |          |  |                        | 5.81 |         |  |          | 27,321 |          |  |  | 72.46  |   |  |  | 5.39 |  
|                              |  |         |                                 |          |  |          |        |          |  |                        |      |         |  |          |        |          |  |  |        |  
|Total average deposits        |  | $       | 37,694                          |          |  |          | 100.00 | %        |  |                        | 4.93 | %       |  | $        | 37,702 |          |  |  | 100.00 | % |  |  | 4.59 | %
|                              |  |         |                                 |          |  |          |        |          |  |                        |      |         |  |          |        |          |  |  |        |  

The following table presents, by various rate categories, the amount of
certificate accounts outstanding at the dates indicated and the periods to
maturity of the certificate accounts outstanding at December 31, 2000 and 1999.

|                         |       |   |                                           |        |                 |   |             |       |            |   |            |       |      |   |                |       |  |   |     |     |  |   |        |        |  |   |        |        | 
|------------------------ | ----- | - | ----------------------------------------- | ------ | --------------- | - | ----------- | ----- | ---------- | - | ---------- | ----- | ---- | - | -------------- | ----- |  | - | --- | --- |  | - | ------ | ------ |  | - | ------ | ------ | 
|                         |       |   | Period to Maturity from December 31, 2000 |        | At December 31,
|                         |       |   |                                           |        |                
|                         |       |   | Less than                                 |        | One to          |   | Two to      |       | Three to   |   | Four to   
|                         |       |   | One Year                                  |        | Two years       |   | Three years |       | Four years |   | Five years |       | 2000 |   | 1999          
|                         |       |   |                                           |        |                 |   |             |       |            |   |            |       |      |   |               
|                         |       |   |                                           |        |                 |   |             |       |            |   |            |       |      |   | (In thousands)
|Certificate accounts(1):
|                        
|                        
|                        
|                        
|4.01 to 5.00%            |       | $ | 199                                       |        |                 | $ | 1           |       |            | $ | 47         |       |      | $ |               |       |  | $ |    |     |  | $ | 247    |        |  | $ | 5,948  |       
|                        
|                        
|                        
|                        
|5.01 to 6.00%            |       |   | 6,478                                     |        |                 |   | 2,236       |       |            |   | 1,102      |       |      |   | 708            |       |  |   | 17  |     |  |   | 10,541 |        |  |   | 19,405 |       
|                        
|                        
|                        
|                        
|6.01 to 7.00%            |       |   | 9,167                                     |        |                 |   | 1,923       |       |            |   | 438        |       |      |   | 1,535          |       |  |   | 618 |     |  |   | 13,681 |        |  |   | 3,720  |       
|                        
|                        
|                        
|                        
|7.01 to 8.00%            |       |   | 100                                       |        |                 |   |            |       |            |   |           |       |      |   |               |       |  |   | 34  |     |  |   | 134    |        |  |   | 184    |       
|                         |       |   |                                           |        |                 |   |             |       |            |   |            |       |      |   |                |       |  |   |     |     |  |   |        |        |  |   |        |       
|                         | Total |   | $                                         | 15,944 |                 |   | $           | 4,160 |            |   | $          | 1,587 |      |   | $              | 2,243 |  |   | $   | 669 |  |   | $      | 24,603 |  |   | $      | 29,257 | 
|                         |       |   |                                           |        |                 |   |             |       |            |   |            |       |      |   |                |       |  |   |     |     |  |   |        |        |  |   |        |       



---

|(1) |  | Certificates of deposit include IRA accounts of $7,446 and $8,852 as of
December 31, 2000 and 1999, respectively.
|--- |  | -----------------------------------------------------------------------------------------------------------------

17



---



##### Table of Contents



Borrowings

At December 31, 2000, the Bank had $30.7 million in outstanding advances
from the FHLB and had no other borrowings. The FHLB advances are used by the
Bank to fund assets, including loan originations. The majority of FHLB
advances bear fixed rates and have terms of three years or less. The
maximum amount that the FHLB will advance to member institutions, including the
Bank, fluctuates from time to time in accordance with current regulations. At
December 31, 2000, the Bank had a borrowing capacity of
$4.2 million from the
FHLB. The Bank may obtain additional advances from the FHLB as part of its
operating strategy.

The following table sets forth certain information regarding the Banks
borrowed funds at or for the periods ended on the dates indicated:

|               |                                                               |  |                        |        |      |  |   |        |  
|-------------- | ------------------------------------------------------------- |  | ---------------------- | ------ | ---- |  | - | ------ | -
|               |                                                               |  | At or For the Year    
|               |                                                               |  | Ended December 31,    
|               |                                                               |  |                       
|               |                                                               |  | 2000                   |        | 1999
|               |                                                               |  |                        |        |     
|               |                                                               |  | (Dollars in thousands)
|FHLB advances:
|              
|              
|              
|              
|               | Average balance outstanding                                   |  | $                      | 30,675 |      |  | $ | 22,162 |  
|              
|              
|              
|              
|               | Maximum amount outstanding at any
month-end during the period |  |                        | 34,000 |      |  |   | 31,139 |  
|              
|              
|              
|              
|               | Balance outstanding at end of period                          |  |                        | 26,864 |      |  |   | 31,139 |  
|              
|              
|              
|              
|               | Weighted average interest rate during the period              |  |                        | 6.32   | %    |  |   | 5.45   | %
|              
|              
|              
|              
|               | Weighted average interest rate at end of period               |  |                        | 6.26   | %    |  |   | 5.91   | %

Personnel

As of December 31, 2000, the Bank had 18 full-time employees and one
part-time employee. The employees are not represented by a collective
bargaining unit and the Bank considers its relationship with its employees to
be good.

18



---



##### Table of Contents



REGULATION AND SUPERVISION

General

The Bank is an Ohio chartered savings bank, a member of the FHLB system,
and its deposit accounts are insured up to applicable limits by the FDIC
through the SAIF. The Bank is subject to extensive regulation, examination and
supervision by the FDIC and the Superintendent of the Ohio Division of
Commerce, Division of Financial Institutions (the Superintendent). The Bank
must file reports with the Superintendent and the FDIC concerning its
activities and financial condition, in addition to obtaining regulatory
approvals prior to entering into certain transactions such as mergers with, or
acquisitions of, other financial institutions. There are periodic examinations
by the Superintendent and the FDIC to test the Banks compliance with various
regulatory requirements. This regulation and supervision establishes a
comprehensive framework of activities in which an institution can engage and is
intended primarily for the protection of the insurance fund and depositors.
The regulatory structure also gives the regulatory authorities extensive
discretion in connection with their supervisory and enforcement activities and
examination policies, including policies with respect to the classification of
assets and the establishment of adequate loan loss reserves for regulatory
purposes. Any change in such policies, whether by the Superintendent, the FDIC
or the Congress, could have a material adverse impact on the Company, the Bank
and their operations. The Company, as a savings and loan holding company, is
also required to file certain reports with, and otherwise comply with the rules
and regulations of the OTS and of the Securities and Exchange Commission (the
SEC) under the federal securities laws. Certain of the regulatory
requirements applicable to the Bank and to the Company are referred to below or
elsewhere herein.

Division Regulation

The Superintendent is responsible for the regulation and supervision of
Ohio savings banks in accordance with the laws of the State of Ohio. Ohio law
prescribes the permissible investments and activities of Ohio savings banks,
including the types of lending that such banks may engage in and the
investments in real estate, subsidiaries and corporate or government securities
that such banks may make. The ability of Ohio savings banks to engage in these
state-authorized investments generally is subject to various limitations under
FDIC regulations and oversight by the FDIC.

Any mergers involving, or acquisitions of control of, Ohio savings banks
are subject to the prior approval of the Superintendent. The Superintendent
may initiate certain supervisory measures or formal enforcement actions against
Ohio savings banks. Ultimately, if the grounds provided by law exist, the
Superintendent may place an Ohio savings bank in conservatorship or
receivership.

The Superintendent conducts regular examinations of the Bank approximately
once a year. The Superintendent imposes assessments on Ohio savings banks
based on the savings banks asset size to cover the cost of supervision and
examination.

In addition to being governed by the laws of Ohio specifically governing
savings banks, the Bank is also governed by Ohio corporate law, to the extent
such law does not conflict with the laws specifically governing savings banks.

19



---



##### Table of Contents



All FDIC-insured state-chartered savings banks and their subsidiaries have
generally been limited to activities and equity investments of the type and in
the amount authorized for national banks, notwithstanding state law. The FDIC
is authorized to permit such institutions to engage in state authorized
activities or investments that do not meet this standard (other than
non-subsidiary equity investments) for institutions that meet all applicable
capital requirements if it is determined that such activities or investments do
not pose a significant risk to the SAIF. All non-subsidiary equity investments
not permitted for national banks were required to be divested by December 19,
1996, pursuant to an FDIC-approved divestiture plan. The FDIC restrictions on
state-chartered institutions have not affected the operations of the Bank.

The Gramm-Leach-Bliley Act of 1999 authorized FDIC-regulated banks that
are well-capitalized and meet certain other conditions to invest in financial
subsidiaries which may engage in a broad array of financial activities as
principal authorized for financial holding companies.

Federal Regulations

Capital Requirements.The FDIC has adopted risk-based capital guidelines
to which the Bank is subject. The guidelines establish a systematic analytical
framework that makes regulatory capital requirements more sensitive to
differences in risk profiles among banking organizations. The Bank is required
to maintain certain levels of regulatory capital in relation to regulatory
risk-weighted assets. The ratio of such regulatory capital to regulatory
risk-weighted assets is referred to as the Banks risk-based capital ratio.
Risk-based capital ratios are determined by allocating assets and specified
off-balance sheet items to four risk-weighted categories ranging from 0% to
100%, with higher levels of capital being required for the categories perceived
as representing greater risk.

These guidelines divide a savings banks capital into two tiers. The
first tier (Tier I) includes common equity, retained earnings, certain
non-cumulative perpetual preferred stock (excluding auction rate issues) and
minority interests in equity accounts of consolidated subsidiaries, less
goodwill and other intangible assets (except mortgage servicing rights and
purchased credit card relationships subject to certain limitations).
Supplementary (Tier II) capital includes, among other items, cumulative
perpetual and long-term limited-life preferred stock, mandatory convertible
securities, certain hybrid capital instruments, term subordinated debt and the
allowance for loan and lease losses limited to a maximum of 1.25% of risk
weighted assets, subject to certain limitations, less required deductions.
Savings banks are required to maintain a total risk-based capital ratio of 8%,
of which at least 4% must be Tier I capital.

In addition, the FDIC has established regulations prescribing a minimum
Tier I leverage ratio (Tier I capital to adjusted total assets as specified in
the regulations). These regulations provide for a minimum Tier I leverage
ratio of 3% for banks that meet certain specified criteria, including that they
have the highest examination rating and are not experiencing or anticipating
significant growth. All other banks are required to maintain a Tier I leverage
ratio of at least 4%. The FDIC may, however, set higher capital requirements
on individual institutions when particular circumstances warrant. Savings
banks experiencing or anticipating significant growth are expected to maintain
capital ratios, including tangible capital positions, well above the minimum
levels.

20



---



##### Table of Contents



The following is a summary of the Banks regulatory capital at December
31, 2000:

|                                      |  |  |      |  
|------------------------------------- |  |  | ---- | -
|GAAP Capital to Total Assets          |  |  | 6.7  | %
|                                     
|                                     
|                                     
|                                     
|Total Capital to Risk-Weighted Assets |  |  | 12.6 | %
|                                     
|                                     
|                                     
|                                     
|Tier I Leverage Ratio                 |  |  | 6.6  | %

The FDIC, along with the other federal banking agencies, have adopted a
regulation providing that the agencies will take account of the exposure of a
banks capital and economic value to changes in interest rate risk in assessing
a banks capital adequacy.

Dividend Limitations.The FDIC has authority to use its enforcement
powers to prohibit a savings bank from paying dividends if, in its opinion, the
payment of dividends would constitute an unsafe or unsound practice. Under
Ohio law, the Company and the Bank are prohibited from paying a dividend which
would result in insolvency. Ohio law requires the Bank to obtain Division
approval before payment of dividends in excess of net profits for the current
and two prior fiscal years, with certain adjustments. Federal law prohibits
the payment of dividends by a bank that will result in the bank failing to meet
applicable capital requirements on a pro forma basis. Additionally, the Bank,
as a subsidiary of a savings and loan holding company, is required to provide
the OTS with 30 days prior written notice before declaring any dividend. The
Banks Plan of Conversion also restricts the Banks payment of dividends in the
event the dividend would impair the liquidation account established in
connection with the Conversion.

Standards for Safety and Soundness.The federal banking agencies have
adopted final regulations and Interagency Guidelines Prescribing Standards for
Safety and Soundness (the Guidelines) to implement safety and soundness
standards used to identify and address problems at insured depository
institutions before capital becomes impaired. If the appropriate federal
banking agency determines that an institution fails to meet any standard
prescribed by the Guidelines, the agency may require the institution to submit
to the agency an acceptable plan to achieve compliance with the standard, as
required by the Federal Deposit Insurance Act, as amended (the FDI Act).

On February 9, 2000, the Bank entered into a Memorandum of Understanding
(the MOU) between it, the FDIC, and Superintendent of Financial Institutions,
State of Ohio (the Superintendent), which requires the Bank to, among other things, formulate a
three year strategic plan with specific provisions required in the MOU, review
management and adopt a management plan, and increase capital. Other areas that
must be addressed under the MOU include the Banks earnings, interest rate
risk, growth and liquidity. The Bank and its Board are required to work
closely with the regulators to carry out the requirements under the
MOU. The FDIC and the Superintendent review the Banks progress
regularly. On February 28, 2001, the Bank was notified by the FDIC
and the Superintendent that their compliance with the MOU was
inadequate. These regulators indicated that a revised MOU is required
and will be issued. Management believes they are providing the
necessary information and operating under the provisions of the MOU.
The failure of the Bank to comply with all of the provisions of the
present or future MOUs could have a material adverse effect upon the
Bank and its operations.

Prompt Corrective Regulatory Action.Federal law requires, among other
things, that federal bank regulatory authorities take prompt corrective
action with respect to banks that do not meet minimum capital requirements.
The severity of such action depends on the degree of undercapitalization.

An institution is deemed to be undercapitalized if it has a total
risk-based capital ratio of less than 8%, a Tier I risk-based capital ratio of
less than 4%, or generally a leverage ratio of less than 4% (3% of less for
institutions with the highest examination rating). An institution is

21



---



##### Table of Contents



deemed to be significantly undercapitalized if it has a total risk-based capital ratio
of less than 6%, a Tier I risk-based capital ratio of less than 3%, or a
leverage ratio of less than 3%. An institution is deemed to be critically
undercapitalized if it has a ratio of tangible equity (as defined in the
regulations) to total assets that is equal to or less than 2%.

Subject to a narrow exception, the banking regulator is required to
appoint a receiver or conservator for an institution that is critically
undercapitalized. The regulation also provides that a capital restoration
plan must be filed with the FDIC within 45 days of the date a savings
institution receives notice that it is undercapitalized, significantly
undercapitalized or critically undercapitalized. Compliance with the plan
must be guaranteed by any parent holding company. In addition, numerous
mandatory supervisory actions become immediately applicable to an
undercapitalized institution, including, but not limited to, increased
monitoring by regulators and restrictions on growth, capital distributions and
expansion. The FDIC could also take any one of a number of discretionary
supervisory actions, including the issuance of a capital directive and the
replacement of senior executive officers and directors.

Insurance of Deposit Accounts.Deposits of the Bank are presently insured
by the SAIF. The FDIC maintains a risk-based assessment system by which
institutions are assigned to one of three categories based on their
capitalization and one of three subcategories based on examination ratings and
other supervisory information. An institutions assessment rate depends upon
the categories to which it is assigned. Assessment rates for SAIF member
institutions are determined semiannually by the FDIC and currently range from
zero basis points for the healthiest institutions to 27 basis points for the
riskiest.

In addition to the assessment for deposit insurance, institutions are
required to make payments on bonds issued in the late 1980s by the Financing
Corporation (FICO) to recapitalize the predecessor to the SAIF. During 2000,
FICO payments for both SAIF and Bank Insurance Fund (BIF) members
approximated 2.07 basis points.

The FDIC has authority to increase insurance assessments. A significant
increase in SAIF insurance premiums would likely have an adverse effect on the
operating expenses and results of operations of the Bank. Management cannot
predict what insurance assessment rates will be in the future.

Insurance of deposits may be terminated by the FDIC upon a finding that
the institution has engaged in unsafe or unsound practices, is in an unsafe or
unsound condition to continue operations or has violated any applicable law,
regulation, rule, order or condition imposed by the FDIC or the OTS. The
management of the Bank does not know of any practice, condition or violation
that might lead to termination of deposit insurance.

Transactions with Related Parties.The Banks authority to engage in
transactions withaffiliates (e.g., any company that controls or is under
common control with an institution, including the Company and its non-savings
institution subsidiaries) is limited by federal law. The aggregate amount of
covered transactions with any individual affiliate is limited to 10% of the
capital and surplus of the savings institution. The aggregate amount of
covered transactions with all affiliates is limited to 20% of the savings
institutions capital and surplus. Certain transactions with affiliates are
required to be secured by collateral in an amount and of a type described in
federal law and the purchase of low quality assets from affiliates is generally
prohibited. Transactions with affiliates, including loans and asset purchases,
must be on terms and under circumstances, including credit standards, that are
substantially the same or at least

22



---



##### Table of Contents



as favorable to the institution as those
prevailing at the time for comparable transactions with non-affiliated
companies. In addition, institutions are prohibited from lending to any
affiliate that is engaged in activities that are not permissible for bank
holding companies and no institution may purchase the securities of any
affiliate other than a subsidiary.

The Banks authority to extend credit to executive officers, directors and
10% shareholders (insiders), as well as entities such persons control, is
governed by federal law. Among other things, such loans are required to be
made on terms substantially the same as those offered to unaffiliated
individuals and to not involve more than the normal risk of repayment. There
is an exception for loans made pursuant to a benefit or compensation program
that is widely available to all employees of the institution and does not give
preference to insiders over other employees. Federal law places individual and
aggregate limits on the amount of loans the Bank may make to insiders based, in
part, on the Banks capital position and requires certain board approval
procedures to be followed loans to executive officers are subject to additional
restrictions.

Enforcement.The FDIC has primary federal enforcement responsibility over
the Bank and has the authority to bring actions against the institution and all
institution-affiliated parties, including stockholders, and any attorneys,
appraisers and accountants who knowingly or recklessly participate in wrongful
action likely to have an adverse effect on an insured institution. Formal
enforcement action may range from the issuance of a capital directive or cease
and desist order to removal of officers and/or directors to institution of
receivership, conservatorship or termination of deposit insurance. Civil
penalties cover a wide range of violations and can amount to $25,000 per day,
or even $1 million per day in especially egregious cases. Federal law also
establishes criminal penalties for certain violations.

Federal Home Loan Bank System

The Bank is a member of the Federal Home Loan Bank System, which consists
of 12 regional Federal Home Loan Banks. The Federal Home Loan Bank provides a
central credit facility primarily for member institutions. The Bank, as a
member of the Federal Home Loan Bank, is required to acquire and hold shares of
capital stock in that Federal Home Loan Bank in an amount at least equal to
1.0% of the aggregate principal amount of its unpaid residential mortgage loans
and similar obligations at the beginning of each year, or 1/20 of its advances
(borrowings) from the Federal Home Loan Bank, whichever is greater. The Bank
was in compliance with this requirement with an investment in Federal Home Loan
Bank stock at December 31, 2000 of $1.8 million.

The Federal Home Loan Banks are required to provide funds for the
resolution of insolvent thrifts in the late 1980s and to contribute funds for
affordable housing programs. These requirements could reduce the amount of
dividends that the Federal Home Loan Banks pay to their members and could also
result in the Federal Home Loan Banks imposing a higher rate of interest on
advances to their members. If dividends were reduced, or interest on future
Federal Home Loan Bank advances increased, The Banks net interest income would
likely also be reduced. Recent legislation has changed the structure of the
Federal Home Loan Banks funding obligations for insolvent thrifts, revised the
capital structure of the Federal Home Loan Banks and implemented entirely
voluntary membership for Federal Home Loan Banks. Management cannot predict
the effect that these changes may have with respect to its Federal Home Loan
Bank membership.

23



---



##### Table of Contents



Federal Reserve System

The Federal Reserve Board regulations require savings institutions to
maintain non-interest earning reserves against their transaction accounts
(primarily NOW and regular checking accounts). The regulations generally
provide that reserves be maintained against aggregate transaction accounts as
follows: for accounts aggregating $42.8 million or less (subject to adjustment
by the Federal Reserve Board) the reserve requirement is 3%; and for accounts
aggregating greater than $42.8 million, the reserve requirement is $1.284
million plus 10% (subject to adjustment by the Federal Reserve Board between 8%
and 14%) against that portion of total transaction accounts in excess of $42.8
million. The first $5.5 million of otherwise reservable balances (subject to
adjustments by the Federal Reserve Board) are exempted from the reserve
requirements. The Bank complies with the foregoing requirements.

Holding Company Regulation

The Company is a nondiversified unitary savings and loan holding company
within the meaning of federal law. As a unitary savings and loan holding
company, the Company is not restricted by federal law as to the types of
business activities in which it may engage, provided that the Bank continues to
be a qualified thrift lender. The Gramm-Leach-Bliley Act of 1999 provides that
no company may acquire control of a savings association after May 4, 1999
unless it engages only in the financial activities permitted for financial
holding companies under the law or for multiple savings and loan holding
companies as described below. Further, the Gramm-Leach-Bliley Act specifies
that existing savings and loan holding companies may only engage in such
activities. The Gramm-Leach-Bliley Act, however, grandfathered the
unrestricted authority for activities with respect to unitary savings and loan
holding companies existing prior to May 4, 1999, such as the Company, so long
as the Bank continues to comply with the qualified thrift lender test,
described below. Upon any non-supervisory acquisition by the Company of
another savings association as a separate subsidiary, the Company would become
a multiple savings and loan holding company and would be subject to extensive
limitations on the types of business activities in which it could engage.
Federal law limits the activities of a multiple savings and loan holding
company and its non-insured institution subsidiaries primarily to activities
permissible for bank holding companies under Section 4(c)(8) of the Bank
Holding Company Act (BHC Act), subject to the prior approval of the OTS, and
to other activities authorized by OTS regulation. Multiple savings and loan
holding companies are generally prohibited from acquiring or retaining more
than 5% of a non-subsidiary holding company, or a non-subsidiary company
engaged in activities other than those permitted by federal law.

A savings and loan holding company is prohibited from, directly or
indirectly, acquiring more than 5% of the voting stock of another savings
institution or holding company thereof, or from acquiring such an institution
or company by merger, consolidation or purchase of its assets, without prior
written approval of the OTS or acquiring or retaining control of a depository
institution that is not insured by the FDIC. In evaluating applications by
holding companies to acquire savings institutions, the OTS must consider the
financial and managerial resources and future prospects of the company and
institution involved, the effect of the acquisition on the risk to the
insurance funds, the convenience and needs of the community and competitive
factors.

The OTS is prohibited from approving any acquisition that would result in
a multiple savings and loan holding company controlling savings institutions in
more than one state, except: (i) interstate supervisory acquisitions by
savings and loan holding companies and (ii)

24



---



##### Table of Contents



the acquisition of a savings institution in another state if the laws of the state of the target savings
institution specifically permit such acquisitions. The states vary in the
extent to which they permit interstate savings and loan holding company
acquisitions.

In order to elect and continue to be regulated as a savings and loan
holding company by the OTS (rather than as a bank holding company by the
Federal Reserve Board), the Bank must continue to qualify as a qualified thrift
lender. To be a qualified thrift lender, a savings institution is required to
maintain at least 65% of its portfolio assets (total assets less: (i)
specified liquid assets up to 20% of total assets; (ii) intangibles, including
goodwill; and (iii) the value of property used to conduct business) in certain
qualified thrift investments (primarily residential mortgages and related
investments, including certain mortgage-backed and related securities) in at
least 9 months out of each 12 month period. A holding company of a savings
institution that fails the test must either convert to a bank holding company
and thereby become subject to the regulation and supervision of the Federal
Reserve Board, or operate under certain restrictions. As of December 31, 2000,
the Bank maintained in excess of 85% of its portfolio assets in qualified
thrift investments and was a qualified thrift lender. Recent legislative
amendments have broadened the scope of qualified thrift investments that go
toward meeting the qualified thrift lender test to fully include credit card
loans, student loans and small business loans. A savings association may also
satisfy the test by qualifying as a domestic building and loan association as
defined in the Internal Revenue Code of 1986 (the Code).

On August 2, 2000, the Company entered into a Supervisory Agreement with
the Office of Thrift Supervision (the OTS) that requires, among other things,
the Company to obtain the OTS prior approval before entering into contracts
for goods and services in excess of $5,000 or making any payments for goods and
services in excess of $2,000 per month. The Company is also restricted in its
ability to borrow money and may not make any changes to its directorate or
executive officer staff unless prior notice has been given to the OTS.

FEDERAL AND STATE TAXATION

Federal Taxation

General.The Company and the Bank report their income on a consolidated
basis using the accrual method of accounting, and are subject to federal income
taxation in the same manner as other corporations with some exceptions,
including particularly the Banks reserve for bad debts discussed below. The
following discussion of tax matters is intended only as a summary and does not
purport to be a comprehensive description of the tax rules applicable to the
Bank or the Company. The Bank has not been audited by the IRS during the past
five years. For its 2000 taxable year, the Bank was subject to a maximum
federal income tax rate of 34%.

Bad Debt Reserves.For fiscal years beginning prior to December 31, 1995,
thrift institutions which qualified under certain definitional tests and other
conditions of the Internal Revenue Code of 1986 (the Code) were permitted to
use certain favorable provisions to calculate their deductions from taxable
income for annual additions to their bad debt reserve. A

25



---



##### Table of Contents



reserve could be established for bad debts on qualifying real property loans (generally secured
by interests in real property improved or to be improved) under (i) the
Percentage of Taxable Income Method (the PTI Method) or (ii) the Experience
Method. The reserve for nonqualifying loans was computed using the Experience
Method.

The Small Business Job Protection Act of 1996 (the 1996 Act), which was
enacted on August 20, 1996, repeals the reserve method of accounting for bad
debts effective for tax years beginning after 1995, and requires savings
institutions to recapture (i.e., take into income) certain portions of their
accumulated bad debt reserves. Thrift institutions eligible to be treated as
small banks (assets of $500 million or less) are allowed to use the
Experience Method applicable to such institutions, while thrift institutions
that are treated as large banks (assets exceeding $500 million) are required to
use only the specific charge-off method. The PTI Method of accounting for bad
debts is no longer available for any financial institution.

A thrift institution required to change its method of computing reserves
for bad debts will treat such change as a change in method of accounting,
initiated by the taxpayer, and having been made with the consent of the IRS.
Any Section 481(a) adjustment required to be taken into income with respect to
such change generally will be taken into income ratably over a six-taxable year
period, beginning with the first taxable year beginning after 1995, subject to
a two-year suspension if the residential loan requirement is satisfied.

Under the residential loan requirement provision, the recapture required
by the 1996 Act will be suspended for each of two successive taxable years,
beginning with the Banks 1996 taxable year, in which the Bank originates a
minimum of certain residential loans based upon the average of the principal
amounts of such loans made by the Bank during its six taxable years preceding
its current taxable year.

The Bank is required to pay over a six year period the excess of the
balance of its tax bad debt reserves as of December 31, 1995 over the balance
of such reserves as of December 31, 1987. As a result of such recapture, the
Bank incurred additional tax payments of approximately $21,000 which were taken
into income beginning in 1999 over a six year period.

Distributions.Under the 1996 Act, if the Bank makes non-dividend
distributions to the Company, such distributions will be considered to have
been made from the Banks unrecaptured tax bad debt reserves (including the
balance of its reserves as of December 31, 1987) to the extent thereof, and
then from the Banks supplemental reserve for losses on loans, to the extent
thereof, and an amount based on the amount distributed (but not in excess of
the amount of such reserves) will be included in the Banks income.
Non-dividend distributions include distributions in excess of the Banks
current and accumulated earnings and profits, as calculated for federal income
tax purposes, distributions in redemption of stock, and distributions in
partial or complete liquidation. Dividends paid out of the Banks current or
accumulated earnings and profits will not be so included in the Banks income.

The amount of additional taxable income triggered by a non-dividend
distribution is an amount that, when reduced by the tax attributable to the
income, is equal to the amount of the distribution. Thus, if the Bank makes a
non-dividend distribution to the Company, approximately one and one-half times
the amount of such distribution (but not in excess of the amount of such
reserves) would be includable in income for federal income tax purposes,
assuming a 35% federal corporate income tax rate. The Bank does not intend to
pay dividends that would result in a recapture of any portion of its bad debt
reserves.

26



---



##### Table of Contents



Dividends Received Deduction and Other Matters.The Company may exclude
from its income 100% of dividends received from the Bank as a member of the
same affiliated group of corporations. The corporate dividends received
deduction is generally 70% in the case of dividends received from unaffiliated
corporations with which the Company and the Bank will not file a consolidated
tax return, except that if the Company or the Bank own more than 20% of the
stock of a corporation distributing a dividend then 80% of any dividends
received may be deducted.

SAIF Recapitalization Assessment.The Funds Act levied a 65.7-cent fee on
every $100 of thrift deposits held on March 31, 1995. For financial statement
purposes, this assessment was reported as an expense for the quarter ended
September 30, 1996. The Funds Act includes a provision which states that the
amount of any special assessment paid to capitalize the SAIF under this
legislation is deductible under Section 162 of the Code in the year of payment.

Ohio Taxation

The Company is subject to the Ohio corporation franchise tax, which, as
applied to the Company, is a tax measured by both net earnings and net worth.
The rate of tax is the greater of (i) 5.1% on the first $50,000 of computed
Ohio taxable income and 8.9% of computed Ohio taxable income in excess of
$50,000 or (ii) 0.582% times taxable net worth.

In computing its tax under the net worth method, the Company may exclude
100% of its investment in the capital stock of the Bank after the Conversion,
as reflected on the balance sheet of the Company, in computing its taxable net
worth as long as it owns at least 25% of the issued and outstanding capital
stock of the Bank. The calculation of the exclusion from net worth is based on
the ratio of the excludable investment (net of any appreciation or goodwill
included in such investment) to total assets multiplied by the net value of the
stock. As a holding company, the Company may be entitled to various other
deductions in computing taxable net worth that are not generally available to
operating companies.

A special litter tax is also applicable to all corporations, including the
Company, subject to the Ohio corporation franchise tax other than financial
institutions. If the franchise tax is paid on the net income basis, the
litter tax is equal to 0.11% of the first $50,000 of computed Ohio taxable
income and 0.22% of computed Ohio taxable income in excess of $50,000. If the
franchise tax is paid on the net worth basis, the litter tax is equal to 0.014%
times taxable net worth.

The Bank is a financial institution for State of Ohio tax purposes. As
such, it is subject to the Ohio corporate franchise tax on financial
institutions, which is imposed annually at a rate of 1.3% of the Banks book
net worth determined in accordance with GAAP. As a financial institution,
the Bank is not subject to any tax based upon net income or net profits imposed
by the State of Ohio.

27



---



##### Table of Contents



Additional Item. Executive Officers of the Registrant.

The following table sets forth certain information regarding the executive
officers of the Company and the Bank who are not also directors.

|               |  |          |    |                                                                   |  |                                              
|-------------- |  | -------- | -- | ----------------------------------------------------------------- |  | ---------------------------------------------
|               |  | Age at  
|Name           |  | 12/31/00 |    | Position with the Company and Bank and Past Five Years Experience
|               |  |          |    |                                                                  
|Diane P. Hunt  |  |          | 45 |                                                                   |  | Vice President, Chief Operating Officer and  
|              
|              
|              
|              
|               |  |          |    |                                                                   |  | Secretary of the Company and Vice            
|              
|              
|              
|              
|               |  |          |    |                                                                   |  | President-Operations, Secretary and Director 
|              
|              
|              
|              
|               |  |          |    |                                                                   |  | of the Bank.                                 
|              
|              
|              
|              
|              
|              
|              
|              
|              
|              
|              
|              
|              
|              
|              
|              
|David K. Brown |  |          | 49 |                                                                   |  | Vice President-Finance and Treasurer of the  
|              
|              
|              
|              
|               |  |          |    |                                                                   |  | Bank and Chief Financial Officer and         
|              
|              
|              
|              
|               |  |          |    |                                                                   |  | Treasurer of the Company. Prior to joining   
|              
|              
|              
|              
|               |  |          |    |                                                                   |  | the Bank in May 2000, Mr. Brown was the Chief
|              
|              
|              
|              
|               |  |          |    |                                                                   |  | Financial Officer of Ripley National Bank, a 
|              
|              
|              
|              
|               |  |          |    |                                                                   |  | commercial bank located in Ripley, Ohio.     




Item 2. Description of Property.

On March 20, 2000 the Company and the Bank relocated their main office to
4730 Montgomery Road, Norwood, Ohio. Prior to its move, the Bank had
maintained leased space from Procter & Gamble Company in St. Bernard, Ohio.
However, Procter & Gamble found an alternative use for the space occupied by
the Bank and decided not to renew the Banks lease necessitating the Banks
relocation. The Bank also operates out of a branch office it opened in 1997 on
Erie Avenue in Cincinnati. The Company believes that the Banks current
facilities are adequate to meet the present and immediately foreseeable needs
of the Bank and the Company. The following table sets forth certain
information relating to the Banks offices.

|                                        |  |        |       |          |  |            |      |                   |  |  |   |                |  |                |     | 
|--------------------------------------- |  | ------ | ----- | -------- |  | ---------- | ---- | ----------------- |  |  | - | -------------- |  | -------------- | --- | 
|                                        |  |        |       |          |  | Original   |      |                   |  |  |   | Net Book Value
|                                        |  |        |       |          |  | Date       |      |                   |  |  |   | of Property or
|                                        |  | Leased |       | Leased   |  | Date of    |      | Leasehold        
|                                        |  | or     |       | or       |  | Lease      |      | Improvements at  
|Location                                |  | Owned  |       | Acquired |  | Expiration |      | December 31, 2000
|                                        |  |        |       |          |  |            |      |                  
|                                        |  |        |       |          |  |            |      |                   |  |  |   |                |  | (In thousands) |    
|4730 Montgomery Road                    |  |        |       |          |  |            |      |                   |  |  |   |                |  |                |     | 
|Norwood, Ohio 45212                     |  |        | Owned |          |  |            | 2000 |                   |  |  |  |                |  | $              | 956 | 
|                                       
|                                       
|                                       
|                                       
|3521 Erie Avenue
Cincinnati, Ohio 45208 |  |        | Owned |          |  |            | 1997 |                   |  |  |  |                |  |                | 310 | 

At December 31, 2000, the Bank owned four ATMs.




Item 3. Legal Proceedings.

On June 9, 2000, four stockholders of the Company, including two members
of the Board of Directors and two additional individuals, filed a complaint for
declaratory judgment and preliminary and permanent injunctive relief against
the Company and each of the other three directors individually in the Court of
Common Pleas in Hamilton, Ohio. The plaintiffs alleged that they were duly
elected to the Board of Directors at the 2000 Annual Meeting of Stockholders.
The plaintiffs sought a declaratory judgment that they were properly elected and

28



---



##### Table of Contents



are members of the Board of Directors and are further attempting to enjoin
the Lenox Board of Directors from taking or approving any action without the
participation of such individuals. The Company in its answer to the complaint
denied the allegations that any board members were up for election and did not
recognize the validity or legal effect of the nominations of the plaintiffs for
director or their election. The parties reached a settlement and the
plaintiffs agreed to dismiss their cause of action.




Item 4. Submission of Matters to a Vote of Security Holders.

None.




PART II




Item 5. Market for Registrants Common Equity and Related Stockholder Matters.

Information relating to the market for Registrants common equity and
related stockholder matters appears in the Registrants 2000 Annual Report to
Stockholders on the back inside cover.




Item 6. Managements Discussion and Analysis of Financial Condition and
Results of Operations.

The above-captioned information appears under Managements Discussion and
Analysis of Financial Condition and Results of Operations in the Registrants
2000 Annual Report to Stockholders and is incorporated herein by reference.




Item 7. Financial Statements.

The Consolidated Financial Statements of Lenox Bancorp, Inc. and its
subsidiary, together with the report thereon by Clark, Schaefer, Hackett & Co.
appear in the Registrants 2000 Annual Report to Stockholders and are
incorporated herein by reference.




Item 8. Change in and Disagreements with Accountants on Accounting and
Financial Disclosure.

None.




PART III




Item 9. Directors and Executive Officers of the Registrant.

The information relating to Directors and Executive Officers of the
Registrant is incorporated herein by reference to the section captioned
Proposal 1  Election of Directors in the Registrants Proxy Statement for
the Annual Meeting of Stockholders to be held on May 9, 2001. Information
concerning Executive Officers who are not directors is contained in Part I of
this report pursuant to paragraph (b) of Item 401 of Regulation S-K in reliance
on Instruction G.




Item 10. Executive Compensation.

The information relating to director and executive compensation is
incorporated herein by reference to the section captioned Executive
Compensation in the Registrants Proxy

29



---



##### Table of Contents



Statement for the Annual Meeting of Stockholders to be held on May 9, 2001.




Item 11. Security Ownership of Certain Beneficial Owners and Management.

The information relating to security ownership of certain beneficial
owners and management is incorporated herein by reference to the section
captioned Stock Ownership in the Registrants Proxy Statement for the Annual
Meeting of Stockholders to be held on May 9, 2001.




Item 12. Certain Relationships and Related Transactions.

The information relating to certain relationships and related transactions
is incorporated herein by reference to the section captioned Transactions with
Management in the Registrants Proxy Statement for the Annual Meeting of
Stockholders to be held on May 9, 2001.




PART IV




Item 13. Exhibits.

(a) The following documents are filed as part of this report:

|    |  |                                                                                                                          
|--- |  | -------------------------------------------------------------------------------------------------------------------------
|(1) |  | Consolidated Financial Statements of the Company are
incorporated by reference to the 2000 Annual Report to Stockholders.
|   
|   
|   
|   
|    |  | Independent Auditors Report                                                                                             
|   
|   
|   
|   
|    |  | Consolidated Balance Sheet as of December 31, 2000 and 1999                                                              
|   
|   
|   
|   
|    |  | Consolidated Statement of Income for the Three Years Ended December 31, 2000                                             
|   
|   
|   
|   
|    |  | Consolidated Statement of Changes in Stockholders Equity for the
Three Years Ended December 31, 2000                    
|   
|   
|   
|   
|    |  | Consolidated Statement of Cash Flows for the Three Years Ended December 31, 2000                                         
|   
|   
|   
|   
|    |  | Notes to Consolidated Financial Statements                                                                               

The remaining information appearing in the 2000 Annual Report to Stockholders
is not deemed to be filed as part of this report, except as expressly provided
herein.

|    |  |         
|--- |  | --------
|(2) |  | Exhibits

(a) The following documents are filed as a part of this report:

|    |  |                                                                 
|--- |  | ----------------------------------------------------------------
|3.1 |  | Amended Articles of Incorporation of Lenox Bancorp, Inc.*       
|   
|   
|   
|   
|3.2 |  | Amended and Restated Code of Regulations of Lenox Bancorp, Inc.*
|   
|   
|   
|   
|4.0 |  | Stock Certificate of Lenox Bancorp, Inc.**                      

30



---



##### Table of Contents



|     |  |                                                                                                           
|---- |  | ----------------------------------------------------------------------------------------------------------
|10.1 |  | Employment Agreement between the Company and the
President dated September 3, 1996***                     
|    
|    
|    
|    
|10.2 |  | Employment Agreement between the Bank and the
President dated September 3, 1996***                        
|    
|    
|    
|    
|10.3 |  | Change in Control Agreement between the Company
and the Chief Operating Officer dated September 3, 1996***
|    
|    
|    
|    
|10.4 |  | Change in Control Agreement between the Bank and
the Chief Operating Officer dated September 3, 1996***   
|    
|    
|    
|    
|10.7 |  | Amended Lenox Bancorp, Inc. 1997 Incentive Plan***                                                        
|    
|    
|    
|    
|13.0 |  | Annual Report to Stockholders                                                                             
|    
|    
|    
|    
|21.0 |  | Subsidiary of the Registrant                                                                              
|    
|    
|    
|    
|23.0 |  | Consent of Clark, Schaefer, Hackett & Co.                                                                 

|    |  |                    
|--- |  | -------------------
|(b) |  | Reports on Form 8-K
|   
|   
|   
|   
|    |  | None               



---

|*   |  | Incorporated herein by reference to the Exhibits to the Form 10-KSB filed
on March 25, 1998.                                                                                                                      
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|   
|   
|   
|**  |  | Incorporated herein by reference to the Exhibits to the Form S-1,
Registration Statement, and Pre-Effective Amendment No. 1, filed on August
25, 1996 and March 8, 1997, respectively, Registration No. 333-96248.
|   
|   
|   
|   
|*** |  | Incorporated herein by reference to the Exhibits to the Form 10-KSB filed
on March 29, 1999.                                                                                                                      

31



---



##### Table of Contents






SIGNATURES

In accordance with Section 13 or 15(d) of the Securities Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.

|                      |  |                                                                      | 
|--------------------- |  | -------------------------------------------------------------------- | 
|                      |  | LENOX BANCORP, INC.                                                 
|                     
|                     
|                     
|                     
|                     
|                     
|                     
|                     
|                     
|                     
|                     
|                     
|                     
|                     
|                     
|                     
|                     
|                     
|                     
|                     
|Dated: March 28, 2001 |  | By: /s/ Virginia M. Heitzman                                        
|                      |  |                                                                     
|                      |  | Virginia M. Heitzman
President, Chief Executive Officer and Director

In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated.

|                                              |  |                                                                               |  |               
|--------------------------------------------- |  | ----------------------------------------------------------------------------- |  | --------------
|Name                                          |  | Title                                                                         |  | Date          
|/s/ Virginia M.
Heitzman
Virginia M. Heitzman |  | President, Chief Executive Officer and Director
(Principal Executive Officer) |  | March 28, 2001
|                                             
|/s/ David K.
BrownDavid K. Brown              |  | Chief Financial Officer
(Principal Financial and Accounting Officer)          |  | March 28, 2001
|                                             
|/s/ Gail R. Behymer
Gail R. Behymer           |  | Director                                                                      |  | March 28, 2001
|                                             
|/s/ Henry E.
Brown
Henry E. Brown             |  | Director                                                                      |  | March 28, 2001
|                                             
|/s/ Reba St. Clair
Reba St. Clair             |  | Director                                                                      |  | March 28, 2001
|                                             
|/s/ John C. Lame
John C. Lame                 |  | Director                                                                      |  | March 28, 2001

32